• Debt advice and regulation



    REGULATION AND THE FORUMS
    Anyone can set up a forum and there is no organism or body that oversees them. Owners/admins do not report to anyone and are free to do as they please. No-one supervises or regulates them, which is why they can be so dangerous to rely on without checking your facts. As will be seen below, a lot of forums engage regulated activities, debt counselling in particular, without being authorised by the FCA. They have managed to skirt around the issue arguing that they don't give advice, using disclaimers and claiming that their sites are editorial in nature. In fact, if you look at the FCA statements below, you'll find most consumer sites should be auhtorised by the FCA.

    DEBT ADVICE AND REGULATION

    With debt affecting nearly one in five UK families, it's little wonder so many online forums are wholly or partially devoted to this subject. Advising people on the best way to deal with their debts is a regulated activity. Prior to the birth of the FCA in April 2014, this required a Consumer Credit License from the Office of Fair Trading (OFT). In April 2014, the FCA took over consumer credit regulation.

    FCA AUTHORISATION LIKELY TO BE REQUIRED

    The FCA website states the following:

    The Financial Services and Markets Act (FSMA) says any firm or individual who carries out a regulated activity in the UK (this includes dual-regulated firms) must be authorised or registered by us, unless they are exempt.
    The FCA Handbook provides a list of regulated activities, which includes the following:

    (te) debt adjusting (article 39D);

    (tf) debt counselling (article 39E);
    This means anyone offering debt advice (a.k.a. debt counselling), needs to be authorised by the FCA.

    WHAT CONSTITUTES DEBT COUNSELLING?

    The FCA website details what debt counselling means:

    PERG 17.2 The basic elements of debt counselling

    Q2.1 What is the basic definition of debt counselling?
    It involves the following elements:
    (1) It is advice given to:
    (a) a
    borrower about the liquidation of a debt due under a credit agreement;
    or
    (b) a hirer about the liquidation of a debt due under a consumer hire agreement;
    (see PERG 17.3 for more about what the advice must be about).
    (2) The advice must relate to a particular debt and debtor (see PERG 17.4).
    (3) It covers the giving of advice. It does not cover just giving mere information.
    This is explained in PERG 17.5.

    IS IT ADVICE?

    We are not left in any doubt, the FCA goes on to explain the meaning of advice:

    PERG 17.5 The meaning of advice

    Q5.1 Broadly speaking, what is advice?

    Advice means giving an opinion as a guide to action to be taken, in this case the liquidation of debts. It either explicitly or implicitly steers the customer to a particular course of action.

    A key question is whether an impartial observer, having due regard to the regulatory regime and guidance, context, timing and what passed between the parties, would conclude that advice had been given. One should look at whether what the adviser says could reasonably have been understood by the client as being advice which would help him make up his mind.

    The concept of advice is broad enough to include any communication with the debtor which, in the particular context in which it is given, goes beyond the mere provision of information and is objectively likely to influence the debtor's decision whether or not to undertake the course of action in question.

    Any course of action does not have to be identified in any detail.
    For example advice to opt for one of a number of identified possible debt solutions without advising which one of those the client should adopt may, depending on the circumstances, be debt counselling.

    Q5.2 Does advice include a recommendation?
    Yes, a recommendation to carry out a specific course of action to liquidate a relevant debt is likely to be debt counselling. However, something falling short of an explicit recommendation can be regulated too. Any element of evaluation, value judgment or persuasion is likely to mean that advice is being given.

    Q5.3 Is giving information advice?

    In the FCA's view, advice requires an element of opinion on the part of the adviser or something that might be taken by the debtor, expressly or by implication, to suggest or influence a course of action. Information, on the other hand, involves statements of facts or figures.

    In general terms, simply giving balanced and neutral information without making any comment or value judgement on its relevance to decisions which a debtor may make is not advice. The provision of purely factual information does not become regulated advice merely because it feeds into the debtor's own decision-making process and is taken into account by him.

    Therefore, a neutral and balanced explanation of the implications of entering into different debt solutions need not, itself, involve debt counselling.

    In the FCA's opinion, however, such information is likely take on the nature of advice if the circumstances in which it is provided give it, expressly or by implication, the force of a recommendation.

    For example the adviser may provide information on a selected, rather than balanced and neutral, basis that would tend to influence the decision of the debtor. This may arise where the adviser offers to provide information about certain ways of liquidating the debtor´┐Żs debts that contain features specified by the debtor. The adviser may then exercise discretion as to which course of action to highlight.

    A key to the question whether advice is given is whether that information is either accompanied by a comment or value judgment on the relevance of that information to the client's decision, or is itself the product of a process of selection involving a value judgment so that the information will tend to influence the decision of the recipient. In both these scenarios, the information acquires the character of a recommendation.

    One factor in deciding whether what was said by an adviser in a particular situation did or did not amount to advice is to look at the inquiry to which the adviser was responding. If a debtor asks for a recommendation, any response is likely to be regarded as advice.

    On the other hand, if a debtor makes a purely factual inquiry it may be the case that a reply which simply provides the relevant factual information is no more than that. In this case it is relevant whether the adviser makes it clear that it does not give advice or whether the adviser runs a debt counselling business.

    FORUM POSTS AND GENERIC ADVICE

    The FCA refers to generic advice which, no doubt, is something forums would argue in their favour, to promote the idea that they do not engage in regulated activities, however, it should be noted that the FCA does consider the range of activities that fall under the debt counselling umbrella to be wide as noted below:

    Q5.4 PERG says a lot about generic advice in relation to other sorts of regulated advice. Is the idea of generic advice relevant to debt counselling?

    Generic advice is a term the FCA uses to refer to something that is advice rather than mere information but which is not regulated because, although it relates to investments, it is not about the merits of buying or selling a particular investment.

    The concept of generic advice is potentially relevant to debt counselling. As explained in the answer to Q1.2 (What are the regulated activities specifically relating to consumer credit debt counselling?) and Q4.1 (Does debt counselling cover advice given to the public in general rather than to a particular debtor?)debt counselling relates to the particular debts of a debtor. Advice that does not relate to particular debts in this way is likely to be generic advice.

    However, as explained in the answer to Q5.1, advice may be debt counselling even though the advice does not identify a course of action with any precision. This narrows the types of advice that will be excluded from being debt counselling on the grounds of being generic advice. Another reason for generic advice being less relevant to debt counselling is that other types of regulated advice relate to a very specific activity, such as buying or selling investments, while the range of activities covered by debt counselling is wide.

    See example (5) in the table in Q7.1 for an example of where generic advice is relevant to debt counselling.

    CAN FORUM POSTS BE CONSIDERED "EDITORIAL"?

    A number of forums have used the "editorial" or "journalistic" argument in their defence, i.e. arguing that what they are doing is similar to a publication, however, if you read the quote below, it will soon become obvious that most forum posts do not fall under this category, not unless they are generic or "stickies" as they are often referred to. Forum threads where a debtor asks questions and receives specific answers, however worded, would seem to fall under debt counselling simply because they relate to a particular debt and debtor, even when the debtor in question is using a screen name and the advice may be worded to read: "If it was me, I would/would not..." or posted using a disclaimer such as "I don't give advice..."

    The generic resources and knowledge base provided by Forum Wars and any sister websites are editorial in nature, as they do not refer to a particular debt or debtor, even if a poster was to be directed to those resources, they are generic in nature.
    PERG 17.4 Advice must relate to a particular debt and debtor

    Q4.1 Does debt counselling cover advice given to the public in general rather than to a particular debtor?
    Debt counselling covers giving advice about "a" debt. This means that the advice must relate to the debts of a particular debtor or debtors. Advice will normally not be covered if it is not given to any particular debtor. So for example, it would not generally cover advice in a newspaper, periodical publication, journal, magazine, publication or a radio or television broadcast. General advice open to everyone on a website is unlikely to be debt counselling for the same reason. On the other hand advice given to a particular debtor over the Internet may be regulated. Please see Q5.5 about whether decision trees involve debt counselling.

    Q4.2 Must advice be given to a borrower?
    Yes. Debt counselling means giving advice to a borrower under a credit agreement or a hirer under a consumer hire agreement. So for example it does not cover advice given to persons who receive it as:

    • a lender under a credit agreement or the owner under a consumer hire agreement; or
    • an adviser who will only use it to inform advice given by him to others (but see Q4.3); or
    • a journalist or broadcaster who will use it only for journalistic purposes.

    IF IN DOUBT, THE FCA PROVIDES SPECIFIC EXAMPLES

    The FCA provides a number of useful examples of things that do and do not constitute debt counselling. As can be seen, most debt related forum posts can be considered debt counselling.

    PERG 17.7 Examples

    Q7.1 Please give me some examples of what is and is not debt counselling
    Please see the following table. All the examples assume that the advice or information relates to debts under a credit agreement or a consumer hire agreement or to a group of debts that include such debts.

    Examples of what is and is not debt counselling
    Example Explanation
    (1) Adviser: I recommend you enter into a debt management plan. This is debt counselling. This is advice which steers the debtor in the direction of a debt solution which the debtor could enter into as a means of liquidating his debts.
    (2) Adviser:I recommend you do not enter into a debt management plan. This is debt counselling. This is advice which steers the debtor away from a particular debt solution which the debtor could have entered into as a means of liquidating his debts.
    (3) Adviser: I suggest you change (or do not change) from a debt management plan to a debt arrangement scheme.
    A debt arrangement scheme refers to a debt payment programme under the Scottish debt arrangement scheme (DAS).
    This is debt counselling. This is advice that steers the debtor in the direction of a different debt solution from the one that he has already entered into as an alternative means of liquidating his debts.
    (4) Adviser:I recommend you do not borrow more than you can comfortably afford. This is not debt counselling as it is about incurring debts, not liquidating them.
    (5) Adviser: I would recommend that you explore the pros and cons of all the different debt solutions that may be available to you. This is not debt counselling.
    It is unregulated generic advice because it does not steer the debtor to any particular course of action in liquidating his debts.
    (6) Adviser: I think that reaching an informal agreement with your creditors about repaying your debts may not be the best option available to you given your circumstances.
    I will set out the pros and cons of various other debt solutions that may be more appropriate to your circumstances, but ultimately the option you choose will be a matter for you.
    This is likely to be debt counselling.
    It does not recommend a precise course of action but, as described in the answer to Q5.1 (Broadly speaking, what is advice?), this does not necessarily matter.
    The adviser is making a value judgement and giving an opinion and is steering the debtor towards certain courses of action and away from others. In particular, the adviser has recommended that the debtor does not deal with his debts by way of an informal agreement.
    (7) The adviser gives an explanation of the way that various types of debt solution work. If this is given in a balanced and neutral way it is likely not to be debt counselling as it is just factual information.
    (8) The adviser gives a comparison of the features and benefits of one type of debt solution with another and the implications of entering into the two different types of debt solutions. Same as the answer to (7).
    (9) An adviser advises on uncertain questions about a debt management plan. The element of uncertainty is likely to mean that the advice has a strong element of opinion and hence is likely to be advice, rather than mere information. It is likely to be debt counselling as long as it steers the debtor towards a course of action in liquidating his debts.
    If the advice is given by a lawyer it is likely to be excluded from debt counselling by the exclusion in article 39K of the RAO (Activities carried on by members of the legal profession etc.) referred to in the answer to Q6.1.
    (10) A person distributes leaflets or illustrations that help debtors to decide how they will liquidate their debts This is not debt counselling as it is advice given to the general public. See the answer to Q4.1 (Does debt counselling cover advice given to the public in general rather than to a particular debtor?) for more about this.
    (11) A person explains how to fill in a form for entering into an IVA It is unlikely that a person would provide this advice on its own by way of business.
    If a person provides this help in the course of carrying on some other unregulated activities he will not be debt counselling as it should be seen as providing information not advice.
    If though he provides this help in the course of a wider debt counselling business it will be included as part of that debt counselling activity.
    If the explanation is given by the insolvency practitioner the exclusion in article 72H of the RAO (Insolvency practitioners) is likely to be available (see Q6.1 (What exclusions are available?)).
    (12) A person uses direct marketing and other forms of advertising (for example, on websites promoted on search engines) and cold calling, to gather personal information from debtors, which is then sold on to providers of debt advice. It is not debt counselling as it does not involve advice to debtors about the liquidation of debts due.
    However, a person providing such referrals will be debt counselling if during the course of communicating with a debtor he makes a recommendation to the debtor as to how he might liquidate his consumer credit debt.
    (13) A person recommends that a debtor obtains advice from a particular debt counselling firm, ABC Debt Management. Taken on its own it is not debt counselling because the adviser is advising the debtor to obtain advice from another adviser.
    However, if ABC Debt Management only offers one debt solution (e.g. a debt management plan), the referral could constitute a recommendation intended implicitly to steer the debtor in the direction of that particular debt solution and, therefore, could be advice (in which case it would be debt counselling).
    Consequently, whether or not debt counselling is involved will depend on the individual circumstances in each case and is likely to involve a consideration of the process as a whole.
    (14) Adviser: I recommend you prioritise the repayment of your electricity bill over all other debts. This is likely to constitute debt counselling if, having considered all of a debtor's outstanding debts, an adviser advises the debtor to prioritise the repayment of a utility bill (e.g. an electricity bill) over his other outstanding debts (including debts arising under credit agreements or consumer hire agreements). This constitutes advising on the liquidation of debts due, since there is an implied recommendation that the debtor should postpone repaying his consumer credit related debts until he has repaid another debt or debts.
    (15) A person (for example, a money adviser) helps a debtor to draw up a budget, e.g. providing a budget planner to see how much disposable income the client has each month or how long the client's money could last over a particular period. This is not debt counselling if all the adviser does is to provide a debtor with information about his budget and the process is limited to, and likely to be perceived by the debtor as, assisting him to make his own choice as to a course of action he might take in liquidating his consumer credit-related debts.
    It may not be advice at all, in that it just puts into a convenient form information that the consumer has himself supplied.
    Even if it goes beyond just organising information supplied by the debtor, as long as the adviser gives the information in a balanced and neutral way, the adviser should be seen as providing information rather than advice. The adviser is supplying material that could be used for the purposes of deciding how to liquidate debts but not advising on liquidating them.
    (16) An adviser gives budgetary advice This is debt counselling if the adviser goes beyond the services in example (15) and advises the debtor on how to match income and debts. For example, the adviser may advise the debtor to reduce discretionary spending to a set amount each month to enable him to pay off a certain amount of a large credit card bill each month.
    It does not matter if the result of the advice is that the debtor should pay off his debts in full, rather than by instalments over a period of time or by entering into some sort of repayment plan, as debt counselling is not limited to advice about being released from paying the debt in full or rescheduling.
    (17) Mortgage adviser: I advise you to consolidate your unsecured consumer credit debts into this regulated mortgage contract. This is unlikely to be debt counselling.
    Leaving aside the exclusions, this would be debt counselling as the mortgage adviser is proposing that the debtor should consolidate a number of his consumer credit debts into a single (potentially more manageable) debt with a view to the debtor being better able to liquidate all of his debts.
    However, the exclusion in article 39J of the RAO (Activities carried on in relation to a regulated mortgage contract or a home purchase plan) is likely to apply. So far as applicable to this example, the exclusion works like this:
    (a) The advice must relate to a regulated mortgage contract.
    This condition is satisfied.
    Example (18) illustrates the issues that would arise if the adviser did not advise on specific regulated mortgage contracts.
    (b) Giving the advice must be a regulated activity. If the only regulated activity involved in giving the advice is debt adjusting, that is not enough. Another regulated activity must apply too. However, the exclusion can still apply if the advice involves debt adjusting in addition to another regulated activity.
    This condition is met because the adviser is advising on regulated mortgage contracts.
    Note: Technically this condition (giving the advice must be a regulated activity) would not be satisfied if the only regulated activity carried on by the adviser is debt adjusting, debt collecting or debt administration. However, this example only mentions debt adjusting as, if any of these three regulated activities apply, it is likely only to be debt adjusting.
    (c) When the mortgage lender enters into the mortgage it will be carrying on the regulated activity of entering into a regulated mortgage contract.
    PERG 4.7 explains when entering into a regulated mortgage contract applies.
    (18) Mortgage adviser: I advise you to consolidate your unsecured consumer credit debts into a single regulated mortgage contract. However, I can't advise you what mortgage contract you should enter into or which mortgage lender you should use. This is debt counselling. The exclusion in article 39J of the RAO (Activities carried on in relation to a regulated mortgage contract or a home purchase plan) does not apply.
    The difference between this example and example (17) is that the advice in this example does not relate to a particular regulated mortgage contract (or several different regulated mortgage contracts). As explained in more detail in PERG 4.6.5 G this means that the adviser is not advising on regulated mortgage contracts. The exclusion in article 39J does not apply because the adviser is not carrying on another regulated activity, which means that one of the conditions for article 39J to apply is not met.
    See example (17) for an explanation of the conditions that must be satisfied if the article 39J exclusion is to apply.
    (19) A person operating a peer-to-peer lending platform advises a debtor on the liquidation of a debt due under a consumer credit agreement entered into with a lender or lenders (via the platform). In this example, the platform operator is carrying on the regulated activity of operating an electronic system in relation to lending. This is debt counselling as long as the loan agreement is a credit agreement.
    The regulated activity of operating an electronic system in relation to lending covers agreements that are called article 36H agreements, which covers more than just credit agreements. If the consumer credit agreement is an article 36H agreement but not a credit agreement the advice will not be debt counselling.

    DOES IT MATTER THAT IT'S ALL FREE OF CHARGE?

    The FCA is clear about this and states that regulated activities still require authorisation even when they are carried out on a non-profit basis. As can be seen below, non-profit bodies still required authorisation to engage in debt counselling, although there is an option to obtain limited permission, permission still has to be sought.

    A firm or business that wants to carry on regulated consumer credit activities will have to apply for authorisation. Find out more about the credit-related activities that require authorisation and whether you should apply for limited or full permission.

    You need to establish whether any of your firm's activities are regulated. If they are you will have to apply for authorisation, unless there is an exemption or exclusion, and more specifically for limited or full permission.
    The regulated consumer credit activities that require authorisation are:
    The FCA provides a list of consumer credit related activities that require limited permission. Note how this includes "not-for-profit bodies". However, just because a forum gives free advice, it does not automatically mean it's a not-for-profit body. Many forums operate as commercial ventures where money is made in ways other than charging users directly for the services provided.
    Regulated consumer credit activities: limited permission
    • consumer hire (such as tool and car hire firms)
    • credit broking (other than by a domestic premises supplier (see COND 1.1A.5A (3)(d) and (3A)) where the sale of goods or non-financial services is the main business, and broking is a secondary activity to help finance the purchase of those goods or services (such as certain motor dealerships and high-street retailers that introduce customers to a finance provider)
    • credit broking in relation to the Green Deal
    • credit broking in relation to consumer hire or hire purchase agreements
    • lending where the sale of goods or non-financial services is the main business, and there is no interest or charges and the agreements are not hire-purchase or conditional sale agreements (such as certain golf clubs or gyms allowing deferred payment for membership)
    • consumer credit lending by local authorities (where lending is within the scope of the Consumer Credit Directive)
    • not-for-profit bodies providing debt counselling, including those who also provide debt adjusting or credit information services

    DEBT ADJUSTING - A STEP FURTHER

    While most debt related forum posts relate to debt counselling, the odd forum does engage in debt adjusting as well. This goes further than just giving advice and means getting involved in the actual settlement of the debt. At some point, the FCA was provided with evidence that a certain forum owner repeatedly engaged in debt adjusting activities with creditors.

    WHAT'S THE PURPOSE OF THE FCA IF THEY DON'T TAKE ACTION?

    The paragraph above refers to the same forum where the owner routinely asks posters to privately email him their credit agreements and other documents for his perusal, and he then proceeds to give his verdict, usually also by private email. Even when the verdict is posted on the forum, no-one else gets to see the documents, so no-one can argue with the verdict or give a different opinion. The verdict concerns the forum owner's views regarding the enforceability of the credit agreements. If he deems them to be unenforceable, the poster is supposed to stop payments. If this isn't one-on-one debt advice, what is? Yet he FCA, despite being alerted to the fact and getting in touch with the owner in question, failed to act.


    Source: FCA Handbook



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