The issue 

Last year, we became aware of several instances of debt payment programmes (DPPs) under the Debt Arrangement Scheme (DAS) being incorrectly recorded as various forms of insolvency on people’s credit files. DAS is a voluntary debt management plan rather than an insolvency solution and being in a DPP should mean that individuals are not restricted from job opportunities or accessing certain financial products in the same way that they would be if they were insolvent. Certain professions have strict rules that preclude employees from entering into insolvency products, therefore many people opt for DAS instead. Despite this, submissions to our evidence base highlighted several cases in which DAS had been wrongly recorded as insolvency on credit files.

What we've done 

We first arranged an initial call with the consumer network team at the FCA. They advised that getting some more information on the issue would help them determine where it stemmed from. We then issued a survey to our members to get a better idea of the prevalence of the issue. Getting evidence from our membership is incredibly important as our members see the effects of issues like this first-hand. Of those surveyed, 70% were aware of the issue and 42% had either encountered a case themselves or had a colleague who had.

We then followed up with the advisers who had experienced the most difficult cases to get a better understanding of the problems this issue had caused clients. From this, we compiled a report including several case studies which we sent to the FCA.

What we found 

  • DPPs are being recorded incorrectly in a number of different ways, including sequestration, IVA, CCJ and just as ‘insolvency’ on credit reports
  • Money advisers reported the issue with all three credit rating agencies
  • The issue is adding to the workload of money advisers
  • Clients are experiencing a wide range of issues. One adviser explained how their client had been offered and accepted a new job only for the offer to be rescinded as a pre-employment credit check had shown a CCJ on their credit file instead of DAS
  • Another client was not allowed to renew their membership with a professional architect body due to insolvency listed on their credit file, and another had appeared to have breached their contract for their job in a bank’s fraud department as their credit file cited bankruptcy
  • Money advisers also reported remortgages and car insurance being declined because of the issue
  • The issue was only resolved for clients when their adviser contacted the CRA and the lender/employer to explain that DAS is not insolvency
  • Some advisers reported having to adapt their case management system to reflect the additional time required to correct errors
  • The issue is becoming so common that some clients are being put off entering a DPP
  • Money advisers feel as though this problem undermines them, as they are rightly telling clients that DAS is not insolvency, only for them to find out that their credit file says otherwise
  • Clients only realised their DPP had been recorded incorrectly when a credit check was undertaken by another party
  • Because clients might not realise their DPP is recorded incorrectly, they can be denied access to credit or other financial products as a result of the error. Although the error can be rectified, these refusals leave a negative mark on a credit that may not have needed to be there had the DPP been recorded correctly in the first instance

Where we are now and next steps 

The report is currently with the FCA’s supervision team. Ideally, the information we have provided will help the FCA identify the root cause of the issue so that measures can be taken to address it.

We are waiting for the FCA to get back to us, and we’ll provide an update at this point.