CMC Lead Generator Fined over PPI Nuisance Calls

The Information Commissioner’s Office has imposed a £250,000 fine on a Bury-based claims management lead generation company that made 15.1 million nuisance calls about payment protection insurance and other matters. The calls were made in the first half of 2019, and although only around 1.1 million of these calls were connected, the ICO says that the company did not obtain the necessary consent to make any of the calls it made. Cold calls about claims management services should not be made unless the recipient has given explicit prior consent to receiving them.


Financial Conduct Authority publishes an open critical letter to Claims Management Companies CMC’s

The Financial Conduct Authority (FCA) has recently published a ‘Dear CEO’ letter on the 26th of October 2020 to Claims Management Companies (CMCs). It is common for the FCA to post letters to its regulated firms as part of its supervision methods, but what is not common is for the FCA to outwardly highlight so many issues with the firms it supervises. In a sentence which sums up the FCA’s view on CMCs it suggests CMCs have ‘a poor understanding of, and sometimes attitude to, their regulatory obligations.’


New Misconduct Fines for CMCs

MOJ gains power to fine CMCs

December 29 2014 was another key date in the rapidly developing area of claims management regulation. From this date, the Claims Management Regulator at the Ministry of Justice (MOJ) has been able to impose fines on claims management companies (CMCs) who are guilty of misconduct.

For the largest firms, fines could be as large as 20% of their turnover for serious offences.

These fines can be imposed for any breaches of the MOJ’s Conduct of Authorised Persons Rules that occurred in full or in part after December 29. Monetary penalties can also be imposed if a company fails to provide requested information to the MOJ, or obstructs the regulator’s investigations in any way.

When fining a company, the MOJ will first consider the ‘nature’ of the breach, and will allocate a rating of between 1 and 3 for this. The highest score is likely to be awarded if the company was uncooperative during the investigation, the breach occurred due to systemic failures at the company, or the breaches were unduly negligent or reckless.

The MOJ will then consider the ‘seriousness’ of the breach, i.e. the level of detriment caused to customers or other parties, and will allocate a rating of 2, 4 or 6 based on just how serious the effects of the breach were.

The scores for nature and seriousness of the breach will then be added together, and fines imposed as follows:

Breach ScoreFine if turnover is below £500,000 in last 12 months (£)Fine if turnover is £500,000 or more in last 12 months (as a % of turnover)
30 – 3,0000 – 0.6
43,000 – 12,5000.6 – 2.5
512,500 – 25,0002.5 – 5
625,000 – 40,0005 – 8
740,000 – 50,0008 – 10
850,000 – 75,00010 – 15
950,000-75,00015 – 20

The MOJ retains the power to suspend or ban a CMC where it believes that their misconduct is so serious that a fine would not be sufficient punishment.

Justice Minister Lord Faulks said:

“People should not have to have their time wasted by the unscrupulous practices of some claims firms out to make themselves a profit at others’ expense.We are making sure they will have to pay the price themselves if they engage in this kind of behaviour.”

Kevin Rousell, head of the Claims Management Regulation unit at the MOJ, said:

“These penalties are a key measure to tackle the companies whose bad practice plagues the reputation of the claims management industry and causes serious inconvenience to the public. Reducing malpractice will also help to improve the reputation of those firms who do adhere to the rules and provide a good service to consumers. We already take tough action against companies which break the rules, including shutting them down when necessary, but now we can make them pay them financially too.”

The regulatory landscape for CMCs is constantly changing. During 2014, new rules were introduced, which included: a requirement to establish that claims have a realistic chance of success before submitting them; new obligations to provide evidence to back up claims; and the need to conduct thorough audits of data obtained, e.g. sources of marketing leads.

From January 2015, complaints about CMCs can be referred to the Legal Ombudsman, which can order companies to pay compensation to customers of up to £30,000.

The number of investigation staff employed by the MOJ has doubled in recent years, making it much more likely that wrongdoing will be identified.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


MOJ Issues Quarterly Enforcement Bulletin

Between July and September 2014, the Claims Management Regulator at the Ministry of Justice (MoJ) cancelled the authorisation of 16 claims management companies (CMCs) as a result of wrongdoing, and warned a further 48 companies. In addition, 25 investigations commenced during this period.

In its quarterly enforcement bulletin, the MoJ summarised the work it had carried out into four categories: payment protection insurance (PPI) and other areas of financial services, nuisance calls and texts, the personal injury referral fee ban and insurance fraud.

The bulletin says that:

“The practices of some CMCs specialising in financial claims, particularly mis-sold payment protection insurance (PPI), continue to concern consumers and the financial services industry.”

During the three month period, almost 20 CMCs that deal with PPI were warned. Issues ranged from marketing practices to complaints handling and quality of documentation (such as letters of authority and Financial Ombudsman Service forms). Six PPI companies lost their authorisation for failing to pay their authorisation fee, and investigations into six more companies commenced.

The MoJ revealed it has concerns about CMCs handling packaged bank account claims, and also reminded companies that the most recent changes to the Conduct of Authorised Persons Rules came into force on October 1. These new rules include: a requirement to establish that claims have a realistic chance of success before submitting them; new obligations to provide evidence to back up claims; the need to have procedures for dealing with vulnerable customers; and the need to conduct thorough audits of data obtained, e.g. sources of marketing leads.

Regarding nuisance calls and texts, the MoJ said it had warned seven companies engaged in lead generation, and that six investigations were ongoing. The regulator continues to work with the Information Commissioner’s Office in this area.

Since the release of the bulletin, the Government has announced that it plans to amend the Privacy and Electronic Communications (EC Directive) Regulations 2003, so that action can be taken against firms should their marketing communications cause ‘annoyance, inconvenience or anxiety’. At present, communications must cause ‘substantial damage’ or ‘substantial distress’ before action can be taken. All CMCs must take note of the proposed changes.

10 companies have been warned over the personal injury referral fee ban, with another 65 companies forced to amend their practices so that they are compliant. The bulletin also says that the number of CMCs handling personal injury claims has more than halved in the last 20 months, from around 2,300 in January 2013 to under 1,140 at the end of September 2014.

The regulator also revealed it is working with City of London Police and the Insurance Fraud Bureau regarding an ongoing investigation and an ongoing prosecution for insurance fraud.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.


MOJ bulletin highlights new requirements for CMCs under contract law

In its August 2014 bulletin, the Claims Management Regulator at the Ministry of Justice (MoJ), advises claims management companies (CMCs) about an important new regulatory development.

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 came into force in June 2014. These regulations require CMCs to make a cancellation form available to the customer before a contract is entered into. If a company does not make such a form available, or fails to provide the contract terms and conditions prior to the start of the contract, then the 14 day cancellation period will not commence until these forms and information have been provided.

Another very important issue mentioned in the bulletin is the situation where a financial institution that has already awarded compensation to a customer then re-reviews the complaint and decides to award extra compensation. In these circumstances, the MoJ says that the CMC has no automatic right to a set percentage of the additional compensation, and that to try and claim an additional fee may be not only a breach of the MoJ’s rules, but also a criminal offence under the Fraud Act 2006. The MoJ advises CMCs that their original contract with a customer will conclude when the first tranche of redress is paid, and that should a CMC wish to claim a percentage of any additional payment, then a new contract must be drawn up.

CMCs handling complaints about packaged bank accounts are instructed not to send generic claim letters, and to tailor letters to banks to the circumstances of the individual customer. A similar instruction was given regarding payment protection insurance complaints in the December 2013 bulletin.

Mention is then made of the fact that some CMCs are still submitting invalid claims, indeed for the worst offenders the majority of their claims concern products which have never been taken out by the customer in question. Companies are warned that enforcement action could follow if they continue with this practice.

CMCs who make use of marketing stands or similar are reminded that they cannot approach passers-by and must wait for potential customers to enquire of them.

Finally, the bulletin refers to the new Conduct of Authorised Persons Rules, which take effect on October 1 2014; and the legislation to allow the MoJ to fine CMCs, which is expected to complete its passage through Parliament by the end of 2014. The new rules include: a requirement to establish that claims have a realistic chance of success before submitting them, new obligations to provide evidence to back up claims and the need to conduct thorough audits of data obtained, e.g. sources of marketing leads.


MOJ gives details in annual report of reduction in CMC numbers

On July 30 2014, the Claims Management Regulation Unit at the Ministry of Justice (MoJ) published its Annual Report.

In the press release accompanying the report, the MoJ focusses on the fact that the number of authorised claims management companies (CMCs) fell from 2,693 in April 2013 to 2,097 in March 2014. The MoJ suggests that this reduction is due to the introduction of a tougher regulatory system, involving the introduction of new rules and more resources to supervise firms.

The detail of the report reveals that, in the 12 months to April 2014, 198 CMCs had their authorisations cancelled as a result of MoJ enforcement action. Two others had their authorisations suspended, one company had conditions imposed on them, and another 240 were formally warned by the MoJ. 604 voluntarily surrendered their authorisation.

Examples given in the report of reasons for taking enforcement action included:

  • Not forwarding complaints to the Financial Ombudsman Service within the required six month time limit
  • Sending large numbers of unsolicited marketing texts
  • Providing misleading information about fees and the services that would be provided in return
  • Breaching the referral fee ban on personal injury claims

Staff numbers within the Unit have increased by almost 50% over the course of the year, giving it more resources to supervise firms and carry out enforcement actions.

According to the report, there are 1,125 CMCs handling personal injury claims, 1,014 handling financial services claims, 418 dealing with criminal injuries, 361 with employment matters, 270 with industrial injuries and 167 with housing disrepair. The area of financial services claims management is described as being “less profitable” than previously, largely due to a reduction in the number of payment protection insurance complaints.

A key section of the report is the timeline, summarising the actions taken by the MoJ during the year. These actions include:

  • April 2013 – bans were introduced on personal injury referral fees, and on offering inducements to make a claim
  • May 2013 – information was gathered from two major banks on the complaints handling practices of CMCs
  • June 2013 – the MoJ started naming CMCs under investigation or subject to enforcement action
  • July 2013 – changes to the Conduct of Authorised Persons Rules came into force
  • August 2013 – as many as 33 CMCs lost their authorisation in the same month for conduct failings
  • November 2013 – a consultation commenced on more rule changes that would affect financial services CMCs
  • December 2013 – a new guide to nuisance marketing messages was published, in association with communications watchdog Ofcom
  • March 2014 – a consultation commenced on a fines system for CMCs

The report also gives details of the reasons consumers make contact with the MoJ, which include:

  • The level of fees charged, or the service provided in return for the fee
  • Unsolicited marketing contacts
  • Delays in providing refunds or handling complaints

Kevin Rousell, head of the Claims Management Regulation Unit, said:

“We have made it very clear to businesses that we take a zero tolerance approach to any malpractice or attempts to take advantage of victims of crime. Our changes have made a clear impact, for the benefit of consumers. But no regulator can ever stand still and we are going further. The new fines we are introducing this year will give us the power to impose tough sanctions on those firms that flout the rules with much more precision, power and proportionality than ever before.”


Banks increase their PPI provision

The half-yearly results from the UK’s banks for the first six months of 2014 show that all of the largest institutions have once again increased their provision for mis-sold payment protection insurance (PPI).

The most eye catching piece of news in this area is that the amount set aside by Lloyds Banking Group to pay PPI redress now runs into 11 figures, at some £10.4 billion. This represents an increase of £600 million on the previous figure announced by the group. The Lloyds group includes Bank of Scotland, TSB and Halifax.

Barclays increased its provision by £900 million to £4.85 billion. Royal Bank of Scotland, which includes NatWest, announced an increase of £150 million to £3.25 billion. HSBC announced an increase of £50 million earlier in 2014, taking its total to £2.1 billion. Santander has set aside an additional £65 million, and its compensation reserves now stand at £816 million.

This means that the five largest banking groups have collectively set aside a total of £21.4 billion to pay PPI claims. Some previous estimates suggested that the industry’s final PPI compensation bill could be as much as £40 billion, but it now appears that a figure closer to £20 billion might be more realistic.

Latest figures from the regulator, the Financial Conduct Authority (FCA), show that the 24 firms who are responsible for the most PPI complaints had paid out £15.5 billion in redress up to the end of May 2014. Data from both the FCA and the independent Financial Ombudsman Service (FOS) show that PPI complaint volumes have fallen significantly in the last 12 months or so, but the numbers of complaints being received are still well in excess of those being made about other financial products.

It is now six years or more since most of the mis-sold policies came into force.  However, as the FOS will accept complaints until ‘three years from when the consumer knew, or could reasonably have known, they had cause to complain’, PPI complaints can certainly still be made. Many PPI policyholders did not realise just how unsuitable their insurance was, and in some cases were unaware they even had the cover, so it is considered that these customers will meet the above criterion.

Although it is certainly possible to make a mis-selling claim for PPI today, the FOS has reported that many of the PPI complaints it receives at present concern how the financial firm calculated the compensation payment. The FOS has indicated that it is concerned about firms failing to take account of additional charges incurred by customers as a result of taking out credit card PPI, and that firms are using ‘alternative redress’ to settle PPI claims. Alternative redress, also known as comparative redress, involves the financial firm deciding that whilst single premium PPI was indeed unsuitable, that regular premium PPI would have been suitable instead. Consequently, the firm does not offer the customer a refund of all premiums paid, and instead offers a lower amount of compensation.