FCA issues warning on three debt management firms

http://www.theguardian.com/money/2015/may/21/fca-issues-warning-on-three-debt-management-firms

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People with debt management plans are being urged to check that the company they are using is regulated after the City watchdog issued a warning to hundreds of clients of three firms.

The Financial Conduct Authority said the three firms – Sterling Financial Security, Haydon Associates Debt Management Consultants and Clear View Finance – had failed to comply with its rules and were no longer allowed to offer debt management services.

The FCA warned that customers of the firms, which are all run out of the same premises in Lichfield, Staffordshire, could be heading for a shock in terms of how much they owe, after it emerged that only 10p in every pound was being used to pay down their debts. For most of the customers with debt plans, 90% of their monthly payment was going to the three firms in the form of fees.

“Customers of the three firms may be left with a debt larger than they expect, even if they have been paying into a plan for some time. That is why, as a matter of urgency, customers should check their debts and seek advice on what to do next,” said the FCA, which took over policing the sector from the Office of Fair Trading in April 2014. Firms that formerly had an OFT licence are now having to apply to the FCA for authorisation by March 2016.

It is understood that when the regulator expressed concerns about the three firms, which between them ran more than 1,300 debt plans, they voluntarily agreed to stop taking on new customers, and later did not apply for authorisation, which means they are unregulated.

The regulator said the firms are no longer be able to negotiate with creditors on their customers’ behalf, so customers should contact banks and other companies that they owe money to, as they are still responsible for repaying their debts.

The FCA operates a consumer credit register of firms that were licensed by the OFT and which have interim permission to continue carrying on trading.

In September 2014 the regulator said many debt management firms were “falling well short of our expectations” and would need to raise their game if they wanted to stay in business. In November 2014 it emerged that Bournes Debt Solutions, based in Manchester, was the latest in a line of debt management firms to collapse into administration, and the following month Harrington Brooks became the first company in the sector to agree a pay compensation to customers since the regulatory changeover.