Debts: Advisory Services

Treasury written question – answered on 8th May 2014.

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Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

To ask the Chancellor of the Exchequer

(1) what discussions he has had with (a) representatives or organisations offering free debt advice, (b) representatives of fee-charging debt management organisations, (c) creditors and (d) the Insolvency Service on the potential effect of his Department's withdrawal from the Debt Management Plan Protocol guidance group;

(2) for what reason his Department will no longer participate in the Debt Management Plan Protocol guidance group; and if he will make a statement;

(3) what assessment he has made of the future implementation of the Debt Management Plan Protocol;

(4) what assessment he has made of the effect of his Department's withdrawal from the Debt Management Plan Protocol guidance group on the development of future non-statutory debt solutions.

Photo of Andrea Leadsom Andrea Leadsom The Economic Secretary to the Treasury

The Government are committed to improving standards in the debt management industry to deliver a better deal for consumers and greater transparency for creditors. The Debt Management Plan Protocol played a crucial role in meeting this objective, working in complement with the OFT regulatory framework, and paved the way for more robust regulation of the sector by the FCA.

From 1 April, responsibility for regulating debt management firms, along with all other consumer credit firms, transferred from the Office of Fair Trading to the Financial Conduct Authority (FCA).

Consumers will be better protected under the new regime. The FCA will:

police the gateway to the market more thoroughly; proactively identify risks to consumers; focus its supervisory resources on areas most likely to cause consumer harm; approve individuals in influential roles in firms; operate a flexible and responsive regime; use its wide enforcement toolkit; and ensure consumers have access to redress.

The FCA will thoroughly assess every debt management firm’s fitness to trade as part of the authorisation process–debt management firms will be among the first to require authorisation.

The FCA has also introduced new requirements for debt management firms, including:

Prudential requirements: Debt management firms often hold consumers’ money—the FCA is requiring large debt management firms to hold capital to ensure that consumers don’t risk losing their money if things go wrong.

Guidance added that debt management firms should not allocate more than half the money received from customers in debt management plans to meeting their fees and charges.

With the new FCA regulatory regime in place which will greatly improve consumer protection in the debt management market, the Government decided, following discussions with a range of stakeholders, that it was the right time to step away from an active role in the protocol.

The Government hope that the stakeholders involved in the protocol will continue to work together to help the FCA monitor the market and drive best practice in the sector.

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