In light of the Financial Conduct Authority’s (FCA) proposed ban on referral fees for debt packager firms, ME Group boss Rob Cooper fears the sanctions could compound issues in the sector. 

The LegalTech CEO, who agrees consumers need to be protected, feels the regulator’s plans will only reduce capacity within the industry and restrictions alone won’t solve the issue.

Debt packagers are regulated providers of debt advice, who refer customers on to other providers of debt solutions. They rely on income from referral fees paid by other firms.

Speaking on the subject, Rob commented:
‘Those looking for debt advice are often in very precarious circumstances themselves, so they need to know the advice they’re receiving is good quality and meets their needs.

‘It’s important that consumers are not placed in unnecessary risk and potentially end up in a worse position than they started in. But prohibiting referral fees doesn’t necessarily fix the problem.

‘There is a substantial lack of capacity in the debt advice sector. Removing referral fees will only reduce that capacity further, and whilst referral fees can distort the behaviour of firms, it isn’t true to say that every firm receiving them is providing poor advice to the consumer.’

In a statement on the FCA’s website, Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said:

Rob Cooper, ME Group CEO

‘Debt advice needs to be good quality and meet the needs of consumers. Too often people who contact debt packagers for help are being given advice that could cause them harm. This is unacceptable, especially as people seeking debt advice are often in vulnerable circumstances.

‘Our proposals will address the inherent conflict of interest present in the debt packager business models. This will help protect consumers who need support managing their debts.’

However, Rob feels the focus should be shifted towards the minority who are taking advantage of vulnerable consumers rather than impeding the entire industry.

He added: ‘All firms, including free-to-use services, should be advancing the interests of the consumer.

‘Unfortunately, we know that does not always happen, but the job of the regulator is to ensure poor practice is weeded out so that the market has consistently high standards.

‘I fear there will be a substantial, unintended impact of banning referral fees.

‘An alternative would be to place greater responsibility and consequences on the firm paying the referral fee to ensure that the advice provided, is in the best interests of the consumer.’