A UK ban on debt packager firms receiving referral fees from debt solution providers has come a step closer with the FCA announcing its intention to consult on details of a ban.

Currently, regulated providers of debt advice – debt packagers – earn a fee from referring indebted customers to debt solution providers rather than to an insolvency practitioner. This, says the regulator, “means that debt packagers have a conflict of interest between giving advice in the customer’s best interest and recommending an option that makes them more money”.

An initial consultation was staged in November 2022, and the FCA has now announced it intends to gather more evidence in order to update its analysis of the market. A further short consultation is open until March 2, with stakeholders given the opportunity to comment.

Poor advice

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: “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.”

The FCA gives an example of a consumer who is accepted onto an IVA following poor advice from a debt packager when a Debt Relief Order would have been more suitable ending up paying an extra £4,710 ($5,788) and five years longer to become debt free.

The regulator is also planning to give more clarity on the process of issuing authorisation for firms who offer debt solutions.