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12 October 2015

Using Pension Savings to Repay Debt - Proposed Changes to FCA Rules & Guidance

The FCA has just released a consultation paper on the proposed changes to their rules and guidance as a result of the recent pension reforms.  This impacts on all firms carrying out debt collection activities or giving debt advice.  The CCA would like to draw our members attention to the proposed changes.  Here's an extract from the paper detailing the relevant points: 

Using pension savings to repay debt

5.28 This section discusses proposed guidance to make explicit the application of existing rules in CONC in the context of pension reforms, particularly in relation to debt collection and debt advice.

5.29 These proposals do not create any new obligations on firms, nor do they place any barriers to consumers choosing to access pension savings to repay debts; they are intended to make clear how existing requirements on firms carrying out debt collecting and advice apply in relation to pensions.

5.30 In this section we use ‘creditor’ to mean lenders, owners, operators of peer-to-peer lending platforms, and debt collectors acting on their behalf.

Debt collection

5.31 When the pension reforms were announced, a number of concerns were raised with us about the potential impact on people with problems repaying debts. In particular, there were concerns that creditors may put pressure on people to access pension savings to repay their debts.

5.32 While in some circumstances it may be in a customer’s interests to do this, the effect of our existing rules is that creditors must not pressurise customers to repay a debt in a single or small number of repayments, or in unreasonably large amounts, if doing so would adversely affect their financial circumstances (CONC 7.3.10R).

5.33 We propose to make clear that an example of behaviour that is likely to contravene this rule and Principle 6 (treating customers fairly) is pressurising a customer to raise funds to repay a debtby accessing their pension savings.

5.34 Although this should be clear to firms already, we feel there is merit in making it explicit and, as such, propose to add guidance in CONC 7 to that effect.

5.35 We also propose to add a reminder to firms of existing perimeter guidance (PERG 12.6G) on the regulated activity of providing advice on conversion or transfer of pension benefits and the overlap with advising on investments. Advising on accessing pension savings is likely to fall into one or both of these regulated activities.

Debt advice

5.36 In addition, concerns were raised that debt management firms may advise customers to access pension savings in order to build up a pot of money with which to offer full and final settlement with creditors.

5.37 Our debt advice rules require that all advice given and action taken by debt advice providers must have regard to the best interests of the customer (CONC 8.3.2R(1)).

5.38 In common with our proposal on debt collection, we are consulting on adding guidance to CONC 8 to remind firms that advising on the conversion or transfer of pension benefits is a regulated activity.

To read the full consultation paper, visit the FCA website.

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