This is despite warnings from the CMC regulator, the Ministry of Justice, that basic checks must be made before a claim is lodged. The mutual sector has no confidence that rogue CMCs will comply and is now calling for tougher action.
Rather than heed MoJ warnings, some CMCs stepped up their bombardment of lenders and the Financial Ombudsman Service with bogus, non-sale claims where the firm never sold the product to the consumer. They mislead consumers into thinking that they are entitled to compensation and burden both the FOS and mutual lenders, with time-consuming investigations.
The impact of the approach being adopted by these CMCs is having significant and unnecessary detrimental effects:
- 22,441 - The number of consumers effectively misled into believing that they have a valid claim with an expectation of compensation.
- 57% - The percentage of CMC claims made that were non-sale claims. These claims are slowing up the processing and resolution of other complaints and increasing administrative costs at mutuals with no consumer benefit.
Worryingly, there is also increasing evidence of pressure selling tactics by some CMCs, sometimes on doorsteps and particularly directed towards elderly or vulnerable consumers. Some demand an up-front fee from the consumer, even when there is no prospect of success, fail to disclose the percentage success fee that they take, or use the phrase ‘no win no fee' and still make some charge in the event of ‘no win'.
The BSA lodged a complaint about the behaviour of certain CMCs with the MoJ in March 2012. Since then data from BSA members has shown that the situation has deteriorated even more. Today the BSA is calling for the MoJ to be granted stronger powers to regulate these organisations. Specifically, in addition to the last resort power to strike a firm off:
The MoJ must be given as a matter of urgency the power to fine, a power that other regulators, such as the Financial Services Authority and the Office of Fair Trading have available to them. It seems at best illogical that a Government regulator has far fewer powers than independent regulators.
CMC clients must be provided with a powerful ombudsman scheme so that they can complain effectively about CMC malpractice. Currently consumers using a CMC have far less protection than consumers in other sectors. It may not be necessary to set up a brand new Ombudsman to deliver this consumer protection. The BSA believes that the MoJ may be considering bringing CMC's under the remit of the Legal Ombudsman Service. If true, the BSA would support such a development.
CMCs should have to pay a fee to the FOS in cases where their claim proves to be bogus. Currently there is no incentive for a CMC to check that a claim relates to an actual product sold.
In addition:
- The MoJ consultation on strengthening CMC conduct rules which was scheduled to start at the beginning of 2012 must now get started. As a minimum; up-front fees, cold calling, full pricing transparency, service standards, professional case handling, and ‘fishing expeditions' must be addressed. A requirement for written contracts should also be introduced.
- The BSA welcomes the proposed Code of Conduct from the Claims Standards Council but remains sceptical that a voluntary industry-led code will make a meaningful difference given that rogue firms ignore the current MoJ conduct rules. What is needed is a Code of Conduct backed by the teeth to enforce it.
Commenting, Adrian Coles, Director-General of the BSA said:
"The Ministry of Justice warning in August 2011 was clearly ignored. If anything some claims management firms have stepped up their irresponsible, speculative scattergun approach to non-sale claims. We have little confidence that their latest communication will have any effect either. Much stronger action is needed if these companies are to stop misleading consumers and putting a pointless and growing administrative burden on BSA members and the Financial Ombudsman Service.
"It is clear that the Ministry of Justice simply does not have the powers that it needs to effectively control the rogue elements in this industry. They do not even have the power to fine. Looked at from the perspective of our highly regulated sector some claims management companies look remarkably like the modern day equivalent of highwaymen.
"Mutuals were minor players in PPI and this can be seen by the fact that just 4%³ of PPI complaints to the Financial Ombudsman Service related to a mutual provider. That said, we are never complacent and I would say to any consumer who did buy such a product from a mutual and believes that it was mis-sold to go direct to their provider to complain. There is no need to go through one of these companies and sacrifice 25% or more of the compensation from a successful complaint.
"Moving forward the BSA is joining forces with Which?, Moneysavingexpert.com and others. If the claims management industry is to be with us for the long term it must have credible and robust regulation."
