Roy Kennedy on the need for proper regulation of the Claims Management industry
The money set aside by the banks to compensate victims of PPI mi-selling claims has reached £9bn: a huge sum of money that highlights the scale of the scandal, and yet another example where our banks lost their way. Quite rightly they have to redress this and compensate customers that have been mis-sold policies.
Claims Management Companies (CMC) act on behalf of individuals, even though the process to make a successful claim is very simple and can involve just sending a couple of letters. (The consumers’ organisation Which provides online tools and a model letter for people to make claims for themselves, allowing them to keep 100 % of any compensation awarded.) While the majority of CMCs act in a responsible way, their fees often amount to a third of any successful claim. Or to put it another way if you make a claim and are awarded for example £3000, you will pay £1000 in fees to the CMC.
Some in the industry do not act responsibly. This is where action must be taken, with proper regulation required to drive out the rogues and set out clear processes and procedures for CMCs to operate. Consumers, if they wish, can then make an informed choice on what is the best option for them.
Bad practice includes unsolicited emails, phone calls and promise-laden text messages in a scatter gun approach to anyone and everyone. The issue of whether you have had ‘have you had any PPI’ issue does not come into it. When contracts are signed with consumers, claims are made to a variety of financial institutions including those that have never had any business dealing with individuals concerned. This wastes the time and money of the financial institution concerned and means people with valid claims have to wait even longer to get proper redress, as they becomes caught up in a backlog of invalid pointless claims. The worst offending firms will simultaneously submit complaints direct to the Financial Ombudsman Service, creating endless backlogs there as well.
The problem for the government, if it is to take effective action, may lie in the fact that a multitude of regulators and organisations are involved and no one body is completely responsible for ensuring CMCs adhere to best practice and the highest standards. This is something the government needs to address urgently if we are to get a better deal for consumers.
But there are things they could do very quickly in the meantime, such as requiring CMCs to inform consumers of their ability to complain personally as well as the free Financial Ombudsman Service available to them; naming and shaming CMCs against which the Ministry of Justice (MoJ) has taken regulatory action, and also those which generate the highest volume of consumer complaints; and publishing the list of offences for which CMCs have been struck off in the MoJ's Claims Management Regulatory Unit Annual Report. In addition, they should get the CMC’s industry and financial institutions around a table to make it clear that they must both accept responsibility and be part of the solution.
Earlier this week, I led a short debate in the Lords on the sending of unsolicited text messages by CMCs. In responding for the government, Lord McNally accepted the need for punishments for breach of data protection and promised a number of actions, including writing to the Information Commissioner on such wanted texts, as well as calls and emails. As belated as these moves are, the government in recognising the problem must now abide by the general rules of pest control and act swiftly and purposefully to tackle the problem at its root.
Lord Roy Kennedy of Southwark is a backbench Labour Peer in the House of Lords
Published 7th November 2012