The Financial Conduct Authority (FCA) is banning certain providers of debt advice from receiving referral fees from debt solution providers.
The ban should save consumers struggling with debt thousands of pounds in unnecessary fees and ensure they receive better quality advice, the FCA said.
It hoped the ban would put a stop to the business model which incentivises debt packagers to recommend certain options that make them more money rather than what is in the customer’s best interest.
Debt packager firms earn money from fees paid when consumers are referred to solution providers.
But some solutions which may be more suitable for consumers do not earn fees and therefore may not be recommended.
The FCA highlighted one consumer, who was homeless, who was recommended an individual voluntary arrangement costing them £6,000 when they could have been debt free in 1 year via a debt relief order for £90.