Guidance

Guidance on monitoring insolvency practitioners: Advertisements, marketing and debt advice

Published 5 February 2021

1. Background

The Individual Voluntary Arrangement (IVA) and Protected Trust Deed (PTD) sector receives a substantial proportion of its potential clients from commercial leads, some of whom are regulated by the Financial Conduct Authority (FCA) to provide debt advice.

The lead used may provide details of consumers who are in debt and potentially require a debt solution, often referred to as lead generators. Debt packagers are FCA regulated and can provide debt advice and package up details of consumers where an IVA/PTD is the recommended solution.

FCA CON 2.2.3 states that a firm must not carry-on a credit-related regulated activity under a name which is likely to mislead customers about the status of the firm or the nature of its business.

There are several instances of lead generators, and to a lesser extent, FCA regulated debt packagers using potentially misleading advertisements to draw consumers to engage with them. Examples of these poor practices, most frequently utilised by lead generators include:

• Claims of unsubstantiated % write-off of debt.
• Claims that firms/solutions are ‘Government backed’ or using ‘Free Government supported’ legislation.
• Use of the word such as ‘free’, ‘quick’ and ‘immediate’ debt solutions.
• Unsolicited use of charity logos to imply an affiliation which cannot be shown as a true reflection of the business’s activities.
• Use of Government or Recognised Professional Bodies’ (RPBs) logos and claims of insolvency practitioners working for the business when they do not.
• Use of the words ‘accredited by’ or suggestions of a ‘national’ scheme backed/supported by ‘Government’.
• Links to review websites which provide misleading reviews of the service provided and unsubstantiated claims in respect of the number of clients helped and awards or ranking of the firm.
• Use of names which could be confused with charities in search engines and suffixes, such as national and ‘.org.uk’, that may imply a charitable status when the firm is profit seeking.
• Colour schemes or designs which replicate or suggest a connection with a debt charity.
• A lack of clarity about their commercial status suggesting their purpose is to help individuals in debt.
• Claims that they are FCA regulated when that is not true.
• Claims that non-FCA authorised entities are providing ‘debt advice’.
• Unbalanced statements about the merits of an IVA/PTD as opposed to a bankruptcy or another debt solution.
• Any form of inducement offered.

All of these actions are liable to mislead consumers into applying/enquiring about the services that are being offered and this could mean that consumers in debt could ultimately end up in a solution without receiving appropriate advice.

Advertising of this nature has appeared in a range of forms, including using one click websites, social media adverts and through the use of social media influencers and competitions.

Appropriate debt advice, in the consumer’s best interests, is essential to ensure that the debt solution proposed is correct for the consumer. IPs should also be fulfilling their obligations under Statement of Insolvency Practice 3.1 (IVAs).

This guidance focuses on cases where the debt solution is, or is likely to be, an IVA or PTD.

2. Insolvency Code of Ethics

An insolvency practitioner is responsible under the Insolvency Code of Ethics to take steps to ensure that if there are threats to the fundamental principles they are sufficiently mitigated when engaging introducer firms.

Insolvency practitioners must have regard for the sections of the code in relating to both introductions and advertising, marketing and other promotional activities. Many of the current practices referred to above breach all or at least some of the sections in these parts of the code. The code now specifically makes the practitioner responsible for actions relating to their own advertisement and promotion and that of any third party when accepting an appointment from them.

3. Information

Information relating to poor practice by leads will be sent by the RPBs, to the Insolvency Service, the Advertising Standards Authority (ASA) and the FCA. Any action taken by ASA and FCA will be fed back to the RPBs for consideration of any regulatory action against their members.

To improve the information available to consumers and ensure accuracy, it is essential that the RPBs refer concerns about the quality of advice and/or advertisement practices of FCA regulated debt packagers to the FCA. They should also refer those firms that imply or state that they offer debt advice where they do not hold the appropriate permissions to do so. Misleading websites and other promotions of this nature should be reported to the ASA:

www.fca.org.uk/consumers/misleading-financial-adverts/report.

Concerns about misleading or irresponsible websites or other advertising generated by an unauthorised debt advice lead generator, where there is no specific FCA authorised firm, no RPB or insolvency practitioner is mentioned, and where there is no element of them suggesting/implying that they are engaging in an unauthorised FCA regulated activity (e.g. offering debt advice themselves) should be reported to the ASA:

www.asa.org.uk/make-a-complaint.html.

4. Application

The RPBs monitor this area as part of their regular monitoring activities. A review of leads and/or debt packager advertisements, marketing and advice should form a part of visits to an insolvency practitioner at a volume IVA/PTD provider.

Below is a list of ways in which the RPBs can monitor this area. The list is not exhaustive, but the RPB will have regard to the regulatory objectives and include some monitoring of the way in which a consumer was introduced to the IP’s firm. This should include:

• Reviews of the SIP 3.1 call and consideration of any references to previous advice/information given by the introducing firm.
• Reviews of how firms internally monitor calls with consumers, following a referral from an introducer firm and any follow-up work in relation to examples of poor advice. If concerns arise, the RPB should seek to obtain a recording of the introducing firm’s call and review it. The RPBs should pay particular attention to ‘cold calling’ tactics used by introducers, which may induce the consumer into a solution that is not in their best interests or appropriate to their circumstances.
• ‘Income and Expenditure’ reviews should include a cross-check of any figures provided by the introducer firm and the SIP3.1 call review to ensure that they appear reasonable and, if they differ, that the reasons for any differences are adequately explained and documented. If that information is not available, the insolvency practitioner should be asked to provide explanations and any necessary clarifications.
• Raising concerns (where identified) with the insolvency practitioner after reviewing appropriate samples of cases, including seeking explanations from the practitioner where the consumer’s decision to propose an IVA/PTD does not appear to strike an appropriate balance between the interests of the consumer and their creditors, or an alternative debt solution would have delivered a similar or better outcome for the debtor and/or their creditors at a lower cost than the fees charged in the IVA or PTD. Particular attention should be paid to particularly low dividend cases, instances where the consumer entered into an IVA or PTD when they would have qualified for a debt relief order, or where a debt management plan paying off all the debts would not have run for significantly longer than an IVA or PTD.
• Requesting a list of the names of introducers (including firms) used by the insolvency practitioner or firm, including copies of contracts and the fee arrangements involved. The RPBs should ensure that these arrangements do not include commission payments which are prohibited by the Insolvency Code of Ethics and that any fees paid for work carried out are fair and reasonable.
• If complaints have been raised about any introducers used by the IP or firm, their referral practices and due diligence processes should be reviewed
• RPBs should seek explanations for high failure rates, especially those arrangements and PTDs which fail in years 1-3 and where most of the contributions have been used to pay fees rather to substantially reduce the consumer’s debts.
• Considering the robustness of any due diligence carried out by the insolvency practitioner or firm in relation to any advertising and marketing by the introducer or firm, and whether this complies with their obligations under the Code of Ethics. If there is evidence that due diligence has not been performed or it has failed to identify and remedy issues, a detailed review of that process, including the advertising and marketing material used by the leads should be performed.

5. Reporting

Due to a rapidly changing environment (where advertisements, the names of introducers or insolvency practitioners, and also websites may only appear online for a few hours or days, the prompt capturing and reporting of concerns to the FCA or ASA is necessary to prevent widespread abuse and substantially the risk of debtors being misled. The RPBs should use the existing channels in place for sharing intelligence to report concerns in relation to insolvency practitioners and/ or leads as soon as possible and at least within 14 days of the evidence being obtained.

All concerns in relation to FCA regulated firms who provide IVAs, and debt packager firms who refer cases to them, should be sent to the FCA. All non-FCA regulated firms should be referred to the FCA if they are making claims to be regulated but do not have permissions. Misleading or irresponsible advertisement practices should be reported to the ASA immediately.

6. Enforcement

Where concerns over advertising, inducements or the advice provided by a third party is identified by, or reported to, the RPB it is important that it promptly establishes how many cases the IP has received through that individual introducer or firm. All of these cases will require the RPB to raise queries with the insolvency practitioner to explain why an IVA/PTD was proposed, and to provide contemporary documented evidence of the advice provided. If the RPB is not satisfied with the response, regulatory action may be appropriate against the practitioner and the individual or firm acting as the introducer reported to the FCA.

Ensuring that insolvency practitioners take responsibility for the journey that the consumer has been on, before they reach the practitioner, is important and with better communications between the relevant regulators, we should be able to focus efforts on raising the quality of debt advice, reducing instances of poor advertising practices, and inappropriate IVAs or PTDs being entered into which in turn may help address the high levels of early failure rates.

The outcomes of any cases brought against IPs for their behaviour should be robust, timely and broadcast (eg through the RPB’s website and Gov.uk).

The RPBs also have an obligation to consider the consumers and whether their current IVA/PTD is the right debt solution for their circumstances. Where there have been concerns about advertising that may have led to appointments, RPBs should undertake a review of a sample of consumers who have engaged with the lead generator in question to ensure appropriate debt advice has been received by an FCA authorised firm.