Some firms charge for arranging and running a debt management plan, and their fees come out of the money a borrower sends towards debts. The FCA’s Consumer Credit sourcebook sets rules for these firms in CONC 8.3 (information before a contract) and CONC 8.7 (charging). The rules apply across the UK, and this guide is general information, not a recommendation of any provider or product.
Information a firm must give at first enquiry
CONC 8.3.1R says a firm must, when the customer first enquires about its services, provide sufficient information in a durable medium to enable a reasonable decision. Except where the disclosure regulations for credit agreements apply, the list includes:
- the nature of the service and the duration of the contract;
- the total cost, or the formula used to calculate fees, or an estimate of the likely total cost;
- any fee or deposit, such as an arrangement, periodic, management or administrative fee;
- any fee that can be imposed on cancellation;
- how percentage or hourly fees are calculated, and which elements of the service the fees cover;
- the circumstances in which the customer can terminate the contract and receive a refund;
- the consequences for the customer’s credit rating, including how long the matter will show on the credit file;
- whether a right to cancel applies, and how payments will be allocated to lenders and when they will be made.
Fees must not swallow the payments to lenders
CONC 8.7.2R requires a firm to ensure that the customer’s obligations to pay its fees do not have the effect that the customer pays all, or substantially all, of those fees in priority to repayments to lenders under the debt management plan, and do not undermine the ability to make significant repayments to lenders throughout the plan, starting with the first month. The guidance in CONC 8.7.3G says an obligation is likely to be viewed as undermining that ability if the firm may allocate more than half of the sums received in any one-month period from the start of the plan to its fees or charges. That is guidance on how the FCA would view a firm’s arrangements, not a fixed cap, and it says the FCA would expect the proportion going to fees to fall once any initial fee has been paid or six months have passed, if earlier. The plan itself is explained in the guide to debt management plans.
Commissions and revised financial statements
Under CONC 8.7.4R a firm must, in good time before entering into a contract, disclose the existence of any commission or incentive payments between the firm and a third party that are relevant to the service, and must disclose the amount if the customer asks. If its fees change during an arrangement in a way that affects the amount available for distribution to lenders, it must send a revised financial statement to the customer’s lenders.
Payments the rules forbid
CONC 8.7.6R lists things a firm must not do. They include:
- requiring or taking any payment before entering into a contract about a debt solution;
- requesting payment from the customer’s payment account unless specifically authorised and not cancelled;
- accepting payment of fees by credit card or other credit, with a narrow exception where the firm does not know and cannot be expected to know that the current account is or would go into debit;
- imposing cancellation charges that are unreasonable or disproportionate to the actual costs necessarily incurred;
- claiming a fee that is not provided for in the agreement, or that is or is likely to be unfair under the Consumer Rights Act 2015;
- asking customers seeking a refund to use a premium rate telephone number.
The same rule bars a firm from switching a customer to a different debt solution without consent after a full explanation, and from switching between solutions while charging a further set-up or administration fee where some or all of that work has already been done, without a reasonable justification. The difference between solutions is explained in the guide to IVAs and debt management plans.
Refunds for wrong or missing service
CONC 8.7.4R also requires refunds in two situations. Where the firm identifies, or it is established, that advice was incorrect or not appropriate, it must refund or credit the fees or charges imposed for that advice. Where any part of the agreed service has not been provided, or not provided with a reasonable standard of skill and care, it must make an appropriate refund. CONC 8.7.6R(8) adds that a firm must not charge an additional fee for further or revised advice in those circumstances.
Free alternatives and complaints
Free, regulated help exists, as described in the guide to free debt advice, and a borrower can compare it with any fee-charging offer before signing. If a firm breaches the rules, the complaint route is set out in the guide to complaining to the Financial Ombudsman Service.
FAQs
Can a debt management firm take payment before I sign a contract?
No. CONC 8.7.6R says a firm must not require or take any payment before entering into a contract with the customer about a debt solution.
Can I pay a debt management firm’s fee by credit card?
CONC 8.7.6R prohibits accepting fees by credit card or other credit, subject to a narrow exception where the firm cannot be expected to know the current account is or would go into debit.
Is there a set limit on how much of my payment goes on fees?
The FCA guidance in CONC 8.7.3G treats allocating more than half of the sums received in a month to fees as likely to undermine the customer’s ability to make significant repayments. It is guidance, not a cap.
The bottom line
FCA rules require fee-charging debt management firms to disclose costs and the timing of payments to lenders at first enquiry, to structure fees so that lenders still receive significant repayments from the first month, to avoid forbidden payment methods and unreasonable cancellation charges, and to refund fees for wrong advice or missing service. This is general information, not legal advice.