The financial watchdog has raised concerns that debt management companies are not carrying out thorough annual reviews – meaning some customers are not benefiting from repayment plans appropriate to their financial situations.
The Financial Conduct Authority (FCA) has contacted the bosses of debt management firms with its concerns that certain companies may not be complying with industry rules to conduct annual reviews on customers.
The letter from Jonathan Davidson, director of supervision, retail and authorisations at the FCA, states: "As you know, your firm is required to maintain contact with the customer and regularly monitor and review their financial position and circumstances. Where your firm administers a DMP (debt management plan) it must ensure that the customer's DMP is reviewed each year.
"Complying with these rules should help your firm ensure that customers continue to receive appropriate advice that has regard to their best interests, that their debt solution continues to be suitable to their individual needs and that information provided to lenders about their customers is accurate and realistic."
Check out our Debt Problems guide if you're struggling with debt.
What are the FCA's rules on this?
Under FCA regulations, all debt management firms are required to review customer information on an annual basis to ensure that repayment plans meet customers' financial needs.
Where customers don't cooperate with the reviews process, the responsibility is on the company to encourage them to engage to get up-to-date financial information. If this is not available, the company should consider lawfully ending its involvement in the individual's debt management plan.
Engagement with debt managers
Customers are encouraged to engage with debt management companies to pay off debts as soon as possible.
Although the company itself is responsible for conducting the annual review, it'll work to your advantage if you update it as soon as your financial situation changes, as any financial advice or repayment plans can be altered to suit your new situation.
If a debt management company ends its involvement with you, the Money Advice Service is available to offer guidance on 0300 330 2222.