FCA proposed ban on debt packagers

The Financial Conduct Authority (FCA), the UK’s financial watchdog, has proposed a ban on debt packagers. Debt packagers are third-party marketers, which are paid a commission for referring customers to fee charging debt management firms. The commission can be substantial and has led to debt packagers steering clients towards potentially unsuitable debt solutions.

The proposed ban would prohibit firms from paying commissions to these lead generators, reducing the incentives for debt packagers to engage in predatory practices. The ban is expected to reduce the overall number of clients being sold unsuitable debt solutions and protect vulnerable consumers from being exposed to harmful financial products.

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said:
‘Many people are facing pressures on their finances due to the rising the cost of living, so it’s crucial they get good quality debt advice.
‘Unsuitable or poor advice can really harm people’s financial lives. We want to stop this harm by removing the conflict of interest between firms giving advice in the customer’s best interest and recommending an option that makes firms more money.’

Consumer advocacy groups have welcomed the proposed ban, stating that it will ensure that consumers receive the debt-relief services they need in a safe and responsible manner. The FCA is currently reviewing the proposal and is expected to make a final decision in the coming months.

The consultation is open until 2nd March 2023. More information can be found here.