The Financial Conduct Authority has published a statement highlighting some issues relating to the way claims management companies handle complaints relating to high-cost lending. Complaints about many areas of consumer credit have risen sharply in recent months, and one of the possible reasons for this is increased CMC activity in this area.
Given that many credit products also have some of the highest uphold rates, it can’t be denied that, in many cases, CMCs have legitimate grounds for pursuing claims on behalf of their customers. Indeed, the FCA’s statement acknowledges this by saying “Where we have investigated complaints from HCL firms about CMCs, we have found that, in most cases, the customer has legitimate grounds to complain”.
Nevertheless, the FCA wishes to remind CMCs that:
- They must not pursue a claim on behalf of a customer if they have reasonable grounds to suspect the claim does not have a good arguable base or is fraudulent, frivolous or vexatious
- They should take all reasonable steps to investigate the existence and merits of each element of a potential claim before submitting the complaint to the credit provider
- Their submissions should substantiate the basis of the claim, should specifically relate to the nature of the individual claim and should not be false, misleading or exaggerated
- They should take into account previous FOS decisions when deciding whether any new cases are likely to have a good chance of success
- In general, CMCs need to comply with the relevant rules in the FCA’s Handbook
The FCA also urges CMCs and high-cost lenders to work together in a co-operative manner, noting that there are several areas where the regulator has noticed the potential for conflict, including:
- CMCs submitting complaints to lenders who insist that the customer in question has never taken out a loan with them
- Lenders refuse to lend to a customer while a complaint investigation is under way, which then leads to the customer choosing to withdraw their complaint and to the CMC charging the customer a (possibly unexpected) cancellation fee
- Some CMCs may be using the same letter of authority to pursue claims against more than one lender
- CMCs believe that lenders’ checking of letters of authority may be excessive and deliberately being used to hinder a customer’s ability to progress their complaint
- Some lenders are unwilling to share information, leading to CMCs submitting full Data Subject Access Requests to the lenders
The FCA statement also makes mention of the October 2020 portfolio strategy letter, which highlighted a number of concerns about the activities of CMCs.
Looking at the products which the FCA believes fall under its definition of high-cost credit, the latest quarterly data from the Financial Ombudsman Service showed that:
- There were 10,321 new complaints about guarantor loans to FOS between October and December 2020, and FOS upheld 81% of the complaints it closed concerning this product
- For home credit, there were 6,091 new complaints and the uphold rate was 84%
- For payday loans, there were 1,296 complaints and 63% were upheld
- For logbook loans, there were 147 complaints and 65% were upheld