The Financial Ombudsman Service Question the problem of spurious complaints

The Financial Ombudsman Service (FOS), the independent body that adjudicates on complaints when the customer and the financial institution cannot reach agreement, has suggested that the problem of spurious complaints by claims management companies (CMCs) may not be as large as some reports indicate. In the United Kingdom, there are several hundred CMCs who handle claims of mis-selling of financial products, many of whom concentrate on payment protection insurance (PPI). Anecdotal evidence has suggested that CMCs are bombarding banks and other firms with claims for mis-sold PPI on behalf of customers who have never purchased the product.

Some financial advisers have suggested that they have been charged in excess of £100,000 in case fees by the FOS, in spite of not having any complaints upheld and that in some cases it has driven them out of business. The FOS currently charges the business a case fee of £500 for every case once they have had three complaints against them in a year (although this will shortly rise to 25 cases for smaller businesses) and levies this fee even if the complaint is rejected. Some have called for CMCs to pay a case fee every time the complaint is not upheld.

FOS said that only 5,667 of 222,333 complaints settled, around 2.5 per cent, during the period April 2011 to March 2012, were what it described as ‘vexatious or frivolous’. The 222,333 figure is the number of complaints settled about all financial products, and if just PPI complaints were considered the proportion classed as frivolous may be slightly higher. PPI complaints account for around 60 per cent of complaints to FOS. The FOS spokesperson went on to reveal that in one quarter of the cases where a bank says the individual did not have PPI, this was in fact untrue.

The main reason given for not charging CMCs a case fee is that they would probably pass the costs on to their customers.

The FOS re-iterated its call for tighter regulation of CMCs, which are at present subject to very light regulation by the Ministry of Justice. Some members of the House of Lords want CMCs to be regulated by the new watchdog the Financial Conduct Authority. CMCs contend that they provide vital specialist help to those without the time or confidence to complain themselves. However, some have questioned whether the fees CMCs charge are justified, sometimes retaining around a third of any compensation. FOS statistics suggest it is arguable whether using a CMC makes the consumer’s claim more likely to succeed.

Whatever the rights and wrongs of the debates surrounding PPI and CMCs, it cannot be denied that a great many people have successfully complained about this product. The number of PPI complaints being received by the FOS has exceeded all predictions, with up to 1,500 complaints every day and some 400,000 to date. Despite recruiting additional staff, the FOS is struggling to cope with its PPI workload. According to its 2012 annual report, 14 per cent of cases referred to the FOS take more than 12 months to settle.


MOJ rule changes consultation in particular signed contract to be in place before fees are taken

The Ministry of Justice is consulting on proposals under which claims management companies cannot take fees from customers until a contract has been signed.

The MoJ proposes to amend its rulebook to read:

CSR 11 – A contract between a business and a client must be signed by the client, and the business must not take any payment from the client until the contract is signed.

The business must provide the following information in writing or electronically before a contract is signed…

Research by the British Bankers Association has suggested that in 16% of cases received by banks from CMCs there is no written contract in place.

The MoJ suggests that the proposed change could reduce the number of customer complaints CMCs receive. It has also opined that the cost impact of the proposed change should be minimal, and that business volumes would not reduce as a result.

The proposal is contained in an MoJ Impact Assessment document that also proposes that CMCs should state their regulator as being ‘The Claims Management Regulator’ rather than ‘The Ministry of Justice’; and calls for CMCs who also represent clients to inform their clients of changes in their authorisation status.

Claims management firms should consider whether changes to their charging arrangements will be needed in order to comply with the new provisions which are likely to come into effect.