John Howard: Clean up claims firms but they have a role to play
How many emails, texts and phone calls have you received today from Claims Management Companies promising you compensation for dodgy loan insurance cover? This aggravating blight on our daily lives is reaching a crescendo as claims firms try to cash in on the billions of pounds the banks have already set aside for the missale of Payment Protection Insurance.
The banks and the Financial Ombudsman Service are also being snowed under with complaints harvested from Daytime TV advertising and automated phone calls. Eighty per cent of PPI claims to the FOS now come from CMCs, whilst the banks tell of spreadsheets with hundreds of names on them, none of whom have ever had PPI. At least some of the cost of checking out these bogus claims is of course falling on the rest of us as bank customers.
But despite being reviled by the banks, consumer groups and the frustrated recipients of unwanted phone calls, they are not entirely unloved. Most of their clients think they do a good job. When I was chair of the Financial Services Consumer Panel we commissioned the only research done so far on why so many members of the public used claims firms when the Financial Ombudsman had apparently made the complaints process so easy. Sixty eight per cent of those who had used a CMC, whether successful or not, said they would recommend them to a friend. Consumers made comments such as “Some money is better than no money” and “I’ve no time, they sort it out for you”.
It’s easy to underestimate the capabilities of some complainants. The FOS says its paperwork is simple but it’s thought about seven million people in the UK are functionally illiterate, meaning they have trouble finding a plumber in Yellow Pages, so even the streamlined FOS documentation, a three page factsheet and a seven page complaint form, can look daunting.
The CMC’s are also spending a huge amount on advertising, reaching people who wouldn’t otherwise know where to start. They can also empathise with the client and reassure them that they have a legitimate grievance, which the FOS can’t do because it must be impartial. Little wonder then that so many people are prepared to part with 25 per cent or more of their compensation for a helping hand.
We must face up to the fact that many people do want this service and it is here to stay, with some CMCs already looking at other issues like the missale of mortgages. The problem is in the regulation of the companies. The Ministry of Justice has responsibility for them at present but it has been slow to deal with the dramatic increase in irresponsible behaviour through lack of resources. Even so last year it struck off 734 firms.
Justice Minister, Lord McNally, meeting fellow peers and consumer groups today, has already conceded there may be “a better home” for the regulation of CMCs than the Ministry of Justice. The FSA could do it but many CMC’s also manage personal injuries claims, so not the FSA’s bag at all. The Solicitors Regulation Authority is another possibility but it’s a relatively new organisation finding its feet and will it react any quicker to bad practice?
Whoever regulates the sector must be much more responsive. At present we are all suffering from the appalling behaviour of the worst firms with aggravating phone calls, wasted time and the increased costs to the banks.
John Howard is former chair of the Financial Services Consumer Panel and special advisor to Huntswood
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Readers' comments (4)
Easy Solution. Our industry is going to have 2 regulators so why could they not? One for the non personal injury claims and the other for Misselling claims. Whatever they do tey must be forced to pay £500 minimum up front to the seller of the product they are claiming against for every claim they are making. If they ask the client to pay this then will soon see a dramatic drop off in claims being submitted. They really are the scum of the earth.
Consumers made comments such as “Some money is better than no money” And that is the core of the problem as the marketing appeals to the very worst aspects of human nature.
A reference to Section 2 of the Fraud Act 2006 would be a good thing to put as a warning in their promotional literature
The financial services industry is going through one of the most radical overhauls ever seen yet while all this is going on, the more “Wild West” the legal system is becoming and one must question whether the MoJ is turning into a version of “Rock Ridge” where the town is out of control with no Sherriff.
Ken Clarke, what have you done?
There is no doubt that there will always be someone who has been disadvantaged in some way and needs help. It is also the case that many need protecting from themselves. In this case, to quote Mongo, the consumer is “only pawn... in game of life” for organisations of this type.
The moral compass has broken.
It seems that everyone is at it these days, there seems to be no shame any more in being accused of lying as long as it means you can get what you want, when you want, from who you want!
Parents are found lying in 2011 to get their children into their school of choice; civil servants are accused of lying to Parliament over the Goldman Sachs tax bill (although I am sure that the lying track record of some politicians has influenced setting the bar at a new low for this to happen).
What is it about the British psyche that leads otherwise sane, sensible people to lie and in many cases quite big time? Science is trying to learn more to help counter the opportunist idiot that lurks within with lie detectors, face scanners and voice recognition software but still has a way to go.
So when does that little white lie turn into something darker that will, if it works, result in considerable sums of cash being collected as the individual “passes go”/ Possibly when a CMC is involved- third party lying!!!!
Researchers have found that the average Briton tells, on average, four lies every day. But I suspect that researchers would have some way to go to beat the insurance industry for finding opportunistic master-classes in the subject of fraudulent claims.
David Hertzell, the Law Commissioner leading the England and Wales consultation project on insurance claim fraud in July 2010 said: “insurance fraud is relatively common and should be discouraged. But the law we have for dealing with it is confusing and contradictory. If the law is to act as a deterrent, it must be clear and easy to understand.”
False claims managed to plumb new depths in 2011 for sheer stupidity and I suspect that CMC's are in that mix in some significant proportion.
To protect myself from the frenzied pro-consumer lobby let me say, at the outset, that bad advice should be punished and recompense provided.
The CMC process bears little connection with mis-selling but has everything to do with maximising their 25% + VAT skim.
Their predations have been so monstrous that few can be unaware of their mindset which is that everybody with any financial plan or policy has probably been mis-sold and they will level a complaint regardless of the facts.
How do we stop this infestation of morally corrupt individuals? Many of them worked previously in financial services and probably caused consumer detriment before they left or were expelled.
From an advisers perspective we are charged with investigating these complaints in a process-driven way regardless of whether they are meritless or valid.
It is easy to imagine a scenario where a large firm receives 20 complaints via a CMC and none of them carry any merit. All are rejected and all are then escalated to the FOS which then invoices the firm for £8,500 for investigating the matters regardless of fault.
This is not Denmark but, nonehteless, there is something rotten here.
The single most relevant aspect here is the comment ''the Financial Ombudsman had apparently made the complaints process so easy''.
It has done this by taking the claims procedure outside of the normal legal due process and in essence, offers a random approach to justice by reversing the usual burden of proof. In proper law whether civil or criminal, the burden of proof lies with the accuser. In FOS world it appears that anyone can make an allegation without providing any evidence and the 'defendant' has to prove their innocence.
This is so inherently wrong especially when there is no hint of a repercussion or other risk/cost against the alleger. The matter is compounded when the costs are loaded against recipient who also has the indignity of no effective right of appeal and an effective double jeopardy inbalance.
As has been mentioned, no-one condones mis-selling but the current situation is farcical. Why are we all paying for a crooked system that diverts massive resources to benefit morally bereft claims firms and dubiously motivated claimants?
If the various regulators had done their jobs, the widespread mis-selling would not have occurred. It is thus doubly a cause of anger when a massive cost is levied for regulation which in turn allows a one sided approach to deal with the effects of its failure.
As to who regulates this malignant sore of an industry, it is not at all reassuring to read how the various bodies being funded at great tax payer/stakeholder cost cannot be expected to do the very jobs for which they have been created!