This paper reports on the findings of our thematic review of the quality of debt management advice.
Why did we carry out this thematic review?
Prior to taking over the regulation of consumer credit in April 2014 we undertook extensive work to understand this market. The results of this indicated that debt management was one of the highest risk activities. We wanted to improve the outcomes for customers and therefore began thematic work which assessed the quality of advice provided by debt management firms.
In September 2014, our other supervisory work in the debt management sector demonstrated significant non-compliance with our consumer credit rules. Following a series of targeted visits to firms, we advised that many debt management firms needed to ‘raise their game’.
Our thematic review assesses the level of compliance with our existing rules – most of which are based on the Office of Fair Trading’s (OFT) former Debt Management Guidance. It does not establish any new standards or expectations.
Who should read this?
- firms and other organisations operating, or considering operating, in the debt management market
- trade bodies representing these firms
- consumer representative groups
We selected a sample of eight firms of varying sizes and business models to assess the quality of advice provided to consumers. The sample included both fee-charging and free-to-customer firms. Our review process looked at individual advice cases, documentation analysis (including internal processes, customer-facing documentation and management information), in addition to visits to firms (which included interviews and live observations).
We focused on the core services of debt management firms – the advice they provide. Our thematic review assessed a number of factors, including: quality of advice; transparency and disclosure; cross-selling and incentives; and systems and controls.
What were our findings?
We found that firms in our sample had fallen short of the standards we expect. Overall, our findings were very disappointing and have reaffirmed our view that poor debt management firms pose a high risk to consumers (particularly those in vulnerable circumstances). Our findings demonstrated that the standard of advice provided by fee-charging debt management firms was of an unacceptably low standard. The advice provided by free-to-customer debt management firms was generally of a higher standard, but there was still scope for material improvement.
What are the next steps?
We are undertaking a broader assessment – on a firm-by-firm basis – as to whether each individual firm meets our standards for authorisation. For those firms that are successful in obtaining authorisation, we will continue to focus on the quality of debt management advice as part of our ongoing supervisory work. We will also work in partnership with other organisations, including the Money Advice Service and Government, to improve outcomes for those consumers who are struggling with debt.