Enhance debt counseling availability and establish a just environment for debt remedies, suggests Woolard Review
The financial landscape is undergoing a significant shift, as the Woolard Review and the Financial Conduct Authority (FCA) work together to establish a robust and fair debt solutions market. The focus is on providing free and fairly funded debt advice, ensuring accessibility for all, now and in the future.
During these challenging times, the Covid-19 pandemic has exacerbated financial struggles for many consumers, leading to excess debt. One of the barriers to recovery is the £90 fee required to file an application for Debt Relief Orders (DROs), which are only available for individuals with disposable income of less than £50 a month. This fee presents a significant obstacle, especially during the pandemic.
Individual Voluntary Arrangements (IVAs) are another debt solution facing challenges. They are failing at their highest rate since 2002, and high commissions paid on referrals can mean consumers do not always find the best advice provider for their needs.
To address these concerns, the Woolard Review recommends a long-term strategy focused on ensuring free, fairly funded debt advice and a robust debt solutions market. The UK government and the FCA are examining the funding models for debt advice and debt solutions such as IVAs and Protected Trust Deeds (PTDs), aiming to reduce high fees and increase fairness and accessibility.
The FCA's approach includes proposing clearer rules and guidance on the affordability and fairness of credit and debt solutions, enhancing market transparency, and encouraging competition in the debt solutions market to drive down excessive fees and promote good consumer outcomes.
Though the 2025 Consultation Paper on Deferred Payment Credit (DPC) does not directly address IVAs and PTDs, it illustrates the FCA’s broader regulatory focus on credit affordability, firm conduct standards, and consumer protections in related credit markets.
The Woolard Review's recommendations and the FCA’s ongoing regulatory initiatives reflect a joint government and regulator strategy to ensure the debt advice sector is adequately funded, that debt solutions fees are fair and transparent, and that consumers receive high-quality, accessible support when dealing with unsecured debt challenges.
The need for free debt advice is expected to grow due to the pandemic, with estimates of between 1 million and 2.5 million additional people needing debt advice over the next few years. However, the debt advice sector currently only has capacity to meet 41% of the demand for its services.
The Woolard Review emphasizes the need for a comprehensive overhaul of the debt solutions sector to remove or reduce barriers to consumers finding suitable debt solutions. This includes discussing the establishment of an emergency fund to pay the £90 DRO application fee for those who cannot afford it, or alternatively, amending, waiving, or reducing the fee.
The diverse interest groups involved in the debt solutions sector may make it challenging for the FCA to drive the required changes, but the fact that it has been recommended in the Review is a step in the right direction. Christopher Woolard, former interim CEO of the UK financial regulator, conducted the review in response to the FCA board's request in September 2020.
The funding of debt advice is a subject of long-held concerns, as it is the only sector largely funded through levies from the financial services sector. However, debt problems are often linked to utility bills, landlords, and local government. The review questions the fairness of the financial services sector being the only sector compelled to fund free debt advice and suggests that for-profit utility providers should also be considered for funding the debt advice sector.
These initiatives aim to create a more equitable and accessible debt solutions market, ensuring that consumers in financial difficulty can find the help they need without facing unnecessary barriers or excessive fees.
Personal-finance issues have escalated due to the pandemic, particularly debt management, as many consumers grapple with excess debt. To alleviate these struggles, the Woolard Review suggests a long-term strategy of ensuring free, fairly funded debt advice.
Addressing high fees in debt solutions like Individual Voluntary Arrangements (IVAs) and Protected Trust Deeds (PTDs) is part of this strategy, as the UK government and the Financial Conduct Authority (FCA) aim to increase fairness and accessibility.
