There are more than eight million people in the UK who have problem debts according to the Money Advice Service and with a new year recently underway; it can be a particularly difficult time following any Christmas excesses.
Vulnerable people with debts can result in a high-risk scenario that some unscrupulous people choose to exploit and a truly dreadful case came to light last October, when the Financial Conduct Authority said it was banning a husband and wife, who ran a debt management business, from any involvement in regulated financial services.
FCA takes action
Adrian and Christine Whitehurst cheated more than 4,000 customers and took proceeds from the business – some £6 million - to live the high life. The couple’s firm, First Step Finance, is now dissolved and it was said that the ban was the strongest action that could be taken, since the wrongdoing took place in the six years before responsibility for regulating consumer credit was handed over to the FCA.
The City of London police are now considering details of the case however; customers will not be able to recover their money, because the Financial Services Compensation Scheme does not cover the losses.
According to the FCA’s executive director for enforcement, Mark Steward: “The Whitehursts were trusted by their customers, who were extremely vulnerable, to help them with their debt problems. They abused this trust, living a luxury lifestyle at the expense of people who could not afford to lose their money.”
First Step conned its customers by taking money via monthly contributions, which it said it would keep safe and to pay off creditors directly. Instead, the money went on cars, holidays and designer goods. Over £500,000 went on holidays, with cars including a Bentley, a Range Rover and a Ducati.
CAB under pressure
It is clear the regulator is determined to see an improving picture of the debt management sector. Negotiating with creditors is not easy and so some feel they need to pay a debt specialist to do this for them. There are free alternatives, such as the Citizens Advice Bureaux, but as a charity, its resources are stretched, and even getting through to them can be hard. But at least the FCA can now take direct action to ensure there is no repeat of the Whitehurst case.
Risk managers working in this sector will be well aware that the spotlight has been turned on them for a number of years – the FCA took over in 2014 and last October, it announced it was undertaking another thematic review of the debt management sector. It said this was because of “poor practice” by some debt management firms and the fact these could pose a high risk for their users. It is expected the review will be complete by the first quarter of 2019 and the FCA said it would be covering:
- The findings from its previous thematic review in 2015 complaints data
- Firm intelligence and information from supervisory contact with firms
- Firms’ applications for authorisation, which include descriptions of their approaches to debt management
- A review of customer case files and visits to providers to interview staff and observe their processes and dealings with customers
The FCA added it would make full use of the information it already holds in order “to minimise burdens on providers”, but would also take “appropriate supervisory action” if it found that firms were falling short of the standards expected.
Quality of advice
Based on findings from its earlier review, the FCA expressed concerns over the quality of advice. It has since said some operators have left the market or had been required to improve their conduct in order to remain authorised.
This latest review will look at a sample of both fee charging and free-to-customer providers and at outcomes for customers as well as the initial advice process.
With so many struggling with money worries, debt management services are here to stay but at least there is now greater scrutiny and reputable providers should take some comfort from the fact this latest review has a carrot and stick approach.
The FCA has emphasised in addition to uncovering problems, there will be evidence gathered of good practice, namely where consumers are helped to manage their debts more effectively.