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
23 August 2012
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