The Financial Conduct Authority (FCA) has implemented a ban preventing certain debt advice services from accepting referral commissions from debt solution entities.
The FCA asserts that this move will prevent consumers burdened with debt from incurring thousands of pounds in unnecessary charges and will enhance the quality of advice they receive.
The aim of the ban is to disrupt a business model that has been encouraging debt packaging companies to propose options that are more profitable for them, instead of prioritizing the customer’s best interest.
Debt packaging firms typically generate income from fees obtained when clients are directed to solution providers.
However, there might be more appropriate solutions for consumers that do not generate fees, and as a result, these may not be suggested.
The FCA drew attention to a case involving a homeless consumer who was advised to opt for an individual voluntary arrangement costing £6,000. This individual could have been debt-free within a year by opting for a debt relief order at the cost of £90.
