CONC 8.7 Charging for debt counselling, debt advice and related services
- (1)
The distance marketing rules in CONC 2.6, including the right to cancel in CONC 11, apply to firms with respect to distance contracts which are credit agreements, consumer hire agreements and agreements the subject matter of which comprises, or relates to, debt counselling, debt adjusting, providing credit information services and providing credit references. CONC 11 excludes various credit agreements from the right to cancel.
- (2)
Where a consumer uses the right to cancel under CONC 11 or under the Financial Services (Distance Marketing) Regulations 2004 to cancel an agreement with a firm to set up or administer a debt solution, the firm should refund any sum paid, less a charge that the firm is entitled to make under CONC 11.1.11 R or regulation 13(6) to (9) of those Regulations.
[Note: paragraphs 3.29 and 3.31 of DMG]
- (3)
The firm may be entitled to impose a charge in (2) if the customer requested the firm to begin to carry out its service within the cancellation period (see CONC 11.1.1 R or regulation 10 of the Financial Services (Distance Marketing) Regulations 2004).
A firm must ensure that the obligations of the customer in relation to the amount, or the timing of payment, of its fees or charges:
- (1)
do not have the effect that the customer pays all, or substantially all, of those fees in priority to making repayments to lenders in accordance with the debt management plan; and
- (2)
do not undermine the customer's ability to make (through the firm acting on the customer's behalf) significant repayments to the customer's lenders throughout the duration of the debt management plan, starting with the first month of the plan; but
- (3)
paragraphs (1) and (2) do not prevent, to the extent the firm complies with all applicable rules, a firm operating a full and final settlement model, in which the firm holds money on behalf of the customer and does not distribute that money promptly, pending negotiating a settlement with the customer's lenders.
[Note: paragraphs 5.3 and 5.4 of the Debt Management Protocol]
- (1)
For the purposes of CONC 8.7.2R (2), an obligation is likely to be viewed as undermining the customer's ability to make significant repayments to the customer's lenders if it has the effect that the firm may allocate more than half of the sums received from the customer in any one-month period from the start of the debt management plan to the discharge (in whole or in part) of its fees or charges.
- (2)
Once the customer has paid any initial fee for the arrangement and preparation of the debt management plan, or, if earlier, once six months from the start of the plan have elapsed, the FCA would expect there usually to be a reduction in the proportion of the sums received from the customer that the firm allocates to the discharge of its fees and charges.
- (3)
A firm should spread any charges or fees payable by the customer for the administration or operation of the debt management plan following its making evenly over the duration of the plan.
- (4)
The proportion of the sums received from a customer in order to discharge the firm's fees or charges should take account of the level of repayments the customer in question makes.
A firm must:
- (1)
in good time before entering into a contract with the customer, disclose the existence of any commission or incentive payments relevant to the service provided to the customer between the firm and any third party and at any time, if the customer requests, disclose the amount of any such commission or incentive payment;
[Note: paragraph 3.34b and c of DMG]
- (2)
send a revised financial statement in the same format as that required under CONC 8.5.1 R to the customer's lenders where the firm's fees or charges alter during an arrangement and would affect the amount available for distribution to lenders;
[Note: paragraph 3.34f (box) of DMG]
- (3)
at the earlier of, where the firm identifies or it is established that advice provided by the firm to the customer was incorrect or was not appropriate to the customer, refund or credit to the customer's account fees or charges imposed for that advice;
[Note: paragraph 3.34m of DMG]
- (4)
make an appropriate refund of fees or charges paid where the whole or any part of the service as agreed with the customer has not been provided or not provided with a reasonable standard of skill and care.
[Note: paragraph 3.34o of DMG]
A firm must not:
- (1)
without a reasonable justification, switch a customer from one debt solution to another while making a further charge for setting up or administering the new debt solution to the extent that some or all of that work has already been carried out by the firm;
[Note: paragraphs 3.32 and 34k of DMG]
- (2)
switch a customer to a different debt solution, without obtaining the customer's consent after having fully explained to the customer the reason for the change;
[Note: paragraph 3.34l of DMG]
- (3)
require or take any payment from a customer before the firm has entered into contract with the customer concerning a debt solution;
[Note: paragraph 3.34d of DMG]
- (4)
request any payment from a customer's payment account,1 unless the customer has specifically authorised the firm to do so and has not cancelled that authorisation;
[Note: paragraph 3.34d (box) of DMG]
- (5)
accept payment for fees or charges by credit card or another form of credit (excluding a payment where the firm does not know and cannot be expected to know that the customer's current account is in debit or would be taken into debit by the payment);
[Note: paragraph 3.34e of DMG]
- (6)
impose cancellation charges that are unreasonable or disproportionate when compared to the actual costs necessarily incurred by the firm in reasonably providing its service;
[Note: paragraph 3.34h of DMG]
- (7)
claim a fee or charge from a customer or take payment from a customer's account which is not provided for in the agreement with the customer, or where it is provided for but is, or is likely to be, unfair under the Unfair Terms in Consumer Contracts Regulations 1999 (for contracts entered into before 1 October 2015) or the Consumer Rights Act 2015;3
[Note: paragraph 3.34i of DMG]
- (8)
where the firm identifies that advice provided by the firm to the customer was incorrect or was not appropriate to the customer, charge an additional fee for further or revised advice; or
[Note: paragraph 3.34m of DMG]
- (9)
request, suggest or instruct customers seeking to recover refunds of fees from the firm to make contact with the firm on a premium rate telephone number.
[Note: paragraph 3.34n of DMG]
Firms should note the effect of the call charges rule in GEN 7.2