Tips N Trickz Money Two thirds of debt firms ‘giving out bad advice and pushing unaffordable payments on customers’

Two thirds of debt firms ‘giving out bad advice and pushing unaffordable payments on customers’

Lady on laptop worried about debts

DEBT firms have been slammed by the city watchdog for continuing to push people into unaffordable repayment plans.

The Financial Conduct Authority (FCA) had “significant concerns” about the market when it first looked into commercial and not-for-profit firms that provide debt advice and administer debt management plans back in 2015.

Lady on laptop worried about debts
Debt management firms are continuing to force people into making unaffordable repayments

But while some firms have improved, four years on the FCA says a whopping two thirds still need to buck up their practices.

In particular, the watchdog is concerned about the treatment of vulnerable customers, the advice given to couples, and the use of a one-size-fits-all approach.

It cites one example of a cancer sufferer who was hounded for unaffordable payments despite being out of work because of their illness.

In another case, an 87-year-old widow on a 95-year debt management was pushed into signing online documents despite being confused and uncomfortable using technology.

How to cut the cost of your debt

IF you’re in large amounts of debt it can be really worrying. Here are some tips from Citizens Advice on how you can take action.

  • Check your bank balance on a regular basis – knowing your spending patterns is the first step to managing your money
  • Work out your budget – write down your income and take away your essential bills such as food and transport. If you have money left over, plan in advance what else you’ll spend or save. If you don’t, look at ways to cut your costs
  • Pay off more than the minimum – If you’ve got credit card debts aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker
  • Pay your most expensive credit card sooner – If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card (the one with the highest interest rate)
  • Prioritise your debts – If you’ve got several debts and you can’t afford to pay them all it’s important to prioritise them. Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don’t pay
  • Get advice – If you’re struggling to pay your debts month after month it’s important you get advice as soon as possible, before they build up even further. Organisations such as Citizens Advice and the Money Advice Trust can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans.

The FCA is further investigating these cases and has also begun enforcement action into another firm – although it wouldn’t tell us which providers this involves.

Other organisations have been warned to clean up their acts or they too will face enforcement action, which can ultimately lead to a fine or other sanctions.

Jonathan Davidson, executive director of supervision, retail and authorisation at the FCA, said: “It is vital that consumers who need help with their debts get quality advice and, if they enter into a debt management plan, that they can afford the payments.

“We are pleased to see the progress that debt management firms have made in becoming compliant. Those which have focused their culture on what is best for their customers, and not just on compliance, have made the biggest strides.

“But many firms have more to do, particularly for more vulnerable consumers, and we have also found that a small number still have unacceptable standards and practices – so we are taking action to stop this.”

How to get help for free

THERE are lots of free organisations that can help you with your problem debts. Here are a few:

  • Citizens Advice – 0808 800 9060
  • StepChange – 0800 138 1111
  • National Debtline – 0808 808 4000

You can also find information about Debt Management Plans (DMP) and Individual Voluntary Arrangements (IVA) on the Money Advice Service website and on the Government’s site.

According to the FCA, only 39 of the 311 commercial firms offering debt management plans that applied for authorisation to continue under the FCA’s regime back in 2014 were granted it.

Kevin Still, director of trade association, the Debt Managers Standards Association (DEMSA), told The Sun: “While we endorse the raising of standards we feel there’s a missed opportunity with this review.

“We don’t think the FCA has looked through both ends of the telescope as while it’s explored the industry it doesn’t look into consumer behaviour and why they choose to make certain decisions, which can sometimes be the wrong choices.

“Some consumers, for example, would rather have a debt management plan even when bankruptcy is the better option.

“This review also only looks at players in the market that hold customers’ money – but there are thousands of debt management firms out there that don’t hold customers’ cash which have been ignored.”

It was announced last October that hard-up Brits with mental health issues will be able to get unlimited time to pay back debts.

If you’re struggling, here’s how to get out of debt in eight simple steps – and get advice for free.

While Money Saving Expert Martin Lewis also shares his top tips on clearing all your debts.

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