Stopping the great consumer rip-off

Roy Kennedy - 2.jpgLord Roy Kennedy of Southwark is a backbench Labour peer in the House of Lords

Turn on the TV, listen to the radio, read your direct mail and text messages, or look around your local shopping centre. Claims Management Companies (CMCs) are everywhere. Some of these companies act very properly and it is an individual’s choice to use them or not.

But there is a side to the industry that does not abide by the highest standards – the side that uses high pressure sales tactics to get people to sign up with the promise of thousands of pounds in compensation for victims of Payment Protection Insurance mis-selling. They leave it to the small print and do not make it clear to customers that they will often take 30% plus VAT of any successful claim as their fee, and in many cases £90 plus VAT per hour worked on your claim if you decide not to pursue it. They can in some cases take upfront fees.

There is concern that the worst in the industry do little research to determine if the consumer actually took out Payment Protection Insurance and instead bombard financial providers with claims. This happens, only for the financial institution to go through the process of evaluating the claim before coming back and saying the individual has never been their customer. All that does is cost the financial institution time and money and builds in a further delay for customers that have a valid claim.

The Financial Ombudsman Service, which deals with complaints against financial institutions that have not been resolved to the customer’s satisfaction, have also found themselves to be the victim of bulk appeals sent in by CMCs. This again just wastes time and money, and builds in further delays for customers with real complaints and who want to get their cases heard quickly.

The main legislation covering CMCs is the 2006 Compensation Act and other associated consumer protection and FSA rules as appropriate. These need urgently updating. 

First, the government should bring CMCs under the remit of the statutory Legal Ombudsman. This would give consumers a body they can complain to about the conduct and service failure and receive a fair and through route to redress.  Secondly, the government should make provision for CMCs to be charged £500 for every claim they submit to the Financial Services Ombudsman, where it is shown to be pointless or vexatious.

Doing both of these things would be easy and straightforward, or at least it would for a government that cared about stopping consumers being continually ripped off.

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