Glasgow MSP Bob Doris has urged the Scottish Parliament to consider taking more action to clamp down on rogue marketing companies who are mis-selling personal debt solutions to vulnerable Scots.
Echoing concerns I raised in an earlier article for the FIRM (Trust Deed Bubble to Burst), the MSP made the calls whilst speaking in the Scottish Parliament.
Discussing the Scottish Government’s new legislative programme, Bob Doris urged MSPs to look closely at the new Bankruptcy and Debt Advice (Scotland) Bill and emphasised the bill could be vital in improving debt solutions for the most vulnerable people.
The Glasgow MSP raised concerns, however, that some lead generation firms were offering Protected Trust Deeds irresponsibly, incentivised by lucrative fees and called for the Scottish Parliament to take further action to regulate them.
At present any firm involved in providing debt advice must have a category E and D Consumer Credit Licence, issued by the Office of Fair Trading (OFT); but there are concerns by many in the debt advice industry that the OFT is an ineffective regulator and many of those involved in providing advice are unqualified or unsuitable to do so.
The Glasgow MSP, therefore, called for the Scottish Government to consider creating an Approved Intermediary Scheme that would require anyone involved in advising on Scottish statutory debt remedies for financial gain to be approved by the Scottish Government.
This Scheme could be deliberately targeted at lead generation firms and would not authorise them in itself to provide access to those remedies, but would allow the Scottish Government to issue guidance to them, or sanction them where they believed it necessary.
By requiring only those who provide leads for financial gain to be registered, this would ensure those that provide advice as part of their profession would not be prevented from doing so, such as elected representatives, solicitors or other professionals.
There is a powerful case for requiring further regulation where firms provide leads for financial gain. The debt advice industry is already recognised as a high risk industry due to the vulnerability of the people involved and the fact debtors have a tendency to panic buy and be distressed sold solutions. If you incentivise those generating leads with lucrative fees, it’s not hard to understand why then the risk of mis-selling or bad advice increases immeasurably.
The Scottish Government do currently operate a similar scheme in that to actually provide access to the Debt Arrangement Scheme, it is necessary to be approved as a money adviser and hold a Consumer Credit Licence, or alternatively be a licenced insolvency practitioner.
The argument, therefore, is to extend this approval scheme to not only those providing access to formal remedies, but also to those providing advice on statutory remedies for financial gain.
The fact such a scheme already exists, however, could also be an argument against any additional regulation. Lead generators acting as intermediaries cannot themselves provide access to remedies, so arguably debtors are already protected in that regardless of who gives them initial advice they must go through an approved money adviser or licenced insolvency practitioner.
However, this ignores the fact the current system is failing. There is fierce competition for referrals and some firms are prepared to pay in excess of £2,000. Also as most advisers and MSPs can testify, too many debtors are ending up in inappropriate solutions.
The simple and brutal fact is lead generators have become too powerful within the Scottish formal debt remedy industry.
They are not as well regulated as those who provide access to debt solutions, they do not have the same administrative and regulatory costs and, therefore, can channel their funds into dominating the internet, TV and radio waves and dominate the flow of clients seeking debt relief and debt management remedies. This is forcing firms to pay more for referrals and in some cases as a result they can exert too much influence over what cases are signed.
Additional regulation would not destroy the market, nor would it prevent legitimate and responsible lead generators from continuing to operate.
However, it would increase the quality of advice and allow the Scottish Government to exercise more control over how their formal remedies are marketed.
More importantly it would ensure vulnerable debtors are protected.
I believe this is what Bob Doris wants and I totally support him in that aim.