The Financial Conduct Authority (FCA) is currently assessing applications for authorisation from all debt management firms with interim permission. Firms that were previously regulated by the Office of Fair Trading have been operating with interim permission since responsibility for consumer credit transferred to the FCA on 1 April 2014. There are approximately 400,000 people on commercial debt management plans in the UK.
The FCA has previously warned that it considers the debt management sector to be high risk and told firms they would need to raise their game if they wanted to become authorised. In a thematic review published in June 2015, it found evidence that firms were not meeting the standards expected. More than 100 firms have left the market since applications closed for debt management authorisation in February 2015.
The FCA is currently writing to 16,000 customers of debt management firm PDHL, which has been refused authorisation and can no longer carry on regulated debt management activities.
Jonathan Davidson, director of supervision – retail and authorisations, at the FCA, said:
“Poor debt advice can lead to consumers trying to make payments on their debt that they cannot afford which is particularly serious for those in vulnerable circumstances and why we have paid very close attention to the advice given to consumers by debt management firms.
“As part of our authorisation process, all firms must demonstrate that they have customers’ interests at the heart of their business.”
In considering PDHL’s application for authorisation, the FCA found evidence that the firm offered poor quality debt advice and uncovered a number of failings, including in relation to:
- consumers being advised to enter into debt solutions that were unsuitable for their circumstances
- the adequacy of PDHL’s systems and controls regarding management information and effective quality assurance
The FCA was concerned about the firm’s treatment of its customers. For example, one customer called PDHL to inform them that they had lost their job. PDHL did not review the case for 2 months at which point the firm identified that the customer had negative disposable income. However, the customer’s request to reduce their minimum payment was not accepted and the customer agreed to maintain payments at the original level. Another customer with a negative disposable income agreed to keep paying the minimum £30 monthly payment under their debt management plan on the basis that they would borrow money from their mother. In both cases the debt management plans failed anyway as the customers stopped making payments to PDHL within 3 months.
Where the FCA decides to refuse an interim permission firm’s application for authorisation, the regulator is writing to customers of the firm once the interim permission lapses to inform them of that fact and advise them where they can get free, impartial debt advice. Consumers seeking debt advice should contact the Money Advice Service, www.moneyadviceservice.org.uk/debt-management[1] or call 0300 330 2222 for more information. The FCA is working closely with the Money Advice Service (MAS) and is also speaking to trade bodies, banks and creditors to advise them of the situation.
Notes to editors
- Final Notice: PDHL Limited[2]
- The FCA gave PDHL a Decision Notice dated 16 December 2015 confirming that it had decided to refuse PDHL’s authorisation application. That day, PDHL referred the matter to the Tribunal seeking urgent relief, including an order suspending the lapsing of (ie extending) its interim permission. The Tribunal granted PDHL an order extending its Interim Permission until it had decided the application for interim relief, PDHL having agreed not to carry on any regulated activities in the meantime.
PDHL’s application was heard in private on 7 January 2016 and the Tribunal refused it; before the Tribunal formally released its decision, PDHL applied again for an order extending its interim permission, which application the Tribunal refused at a hearing in private on 28 January 2016. However, the Tribunal suspended the effect of its decisions (which it ordered were to remain private) to allow PDHL to pursue its appeal rights, PDHL having undertaken not to carry on regulated activities in the meantime. On 22 February 2016 PDHL agreed to withdraw its appeal, and its interim permission lapsed at 5pm on 9 March 2016. - Tribunal decision notices: UKUT 0130[3], UKUT 0129[4], UKUT 0018[5]
- Further information about the authorisation process[6]
- On 1 April 2014, the FCA took over responsibility for consumer credit and the regulation of 50,000 consumer credit firms, including logbook lenders, payday lenders and debt management firms.
- On 1 April 2013 the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
- Find out more information about the FCA.