Debt Management Firm Collapse Compensation
Published / Last Updated on 03/12/2024
Debt management scheme firms that are authorised by the Financial Conduct Authority (FCA) with debt scheme subscriber funds protected from firm collapse by the Financial Services Compensation Scheme (FSCS).
Debt management schemes only became regulated by the FCA from 1 April 2018 with all firms required to be authorised from that date and therefore party to the FSCS.
- If the debt management firm failed before 1 April 2018, you have no protection.
- If the debt management firm failed after 1 April 2018 but before 1 April 2019 and was regulated, FSCS protection was £50,000.
- If the debt management firm failed after 31 March 2019 and was regulated, FSCS protection is £85,000.
Maximum compensation payable is £85,000 per person per debt management firm although client ‘own funds’ held by debt management firms ready to be paid out to creditors are likely to be nowhere near this level.
What is covered?
- The firm must hold client money, i.e., money that you have paid in as part of your debt management plan yet to be paid to creditors.
- The firm must have received or held the money through a UK branch in connection with the regulated activities of debt counselling or debt adjusting.
- There must be a shortfall (and proof) of the amount of money you have paid to the debt management firm compared to what is held in the firm’s account that has not yet been paid to creditors on your behalf.
- The firm (or its principals) must be unable to meet claims for compensation.
What is not covered?
- Money that you have paid under an individual voluntary arrangement (IVA) arranged by insolvency practitioners as this is not FCA regulated.
- Debt advice as again this is not regulated by the FCA.
- It is only client funds held be FCA regulated debt management firms that is protected.
Check Protection Now
- What does the FSCS cover? https://www.fscs.org.uk/what-we-cover/
- FSCS and ‘Debt Management’ https://www.fscs.org.uk/what-we-cover/debt-management/
