It has been revealed that the Financial Ombudsman Service (FOS) has referred 13 claims management companies (CMCs) to their regulator over concerns about their practices. In response to a freedom of information request made by financial industry newspaper Money Marketing, the FOS said it referred 13 CMCs to the Claims Management Regulator at the Ministry of Justice (MoJ) in the period from November 1 2012 to July 1 2013. The FOS only started formally recording referrals to the MoJ in autumn 2012.
The FOS is an independent body that provides final, legally binding decisions on consumer complaints against financial institutions where the complainant does not agree with the firm’s assessment of the matter.
CMCs certainly have a significant impact on the activities of the FOS. In the financial year to March 31 2013, the FOS received a record 508,881 complaints, which were dominated by the 378,699 complaints – 74% of the total – regarding payment protection insurance (PPI). 45% of total complaints were received from CMCs, but this rises to 57% when only PPI complaints are considered. Of all the complaints received from CMCs, some 94% concerned PPI. Only 4% concerned credit cards, and the remaining 2% were complaints regarding other financial services, e.g. investments, current accounts and mortgages. 12 large companies were responsible for submitting a majority (51%) of the complaints received from CMCs.
In the annual report for 2012/13, the FOS said it met regularly with representatives of the claims management industry. In his foreword to the 2012/13 annual report, FOS chairman Sir Nicholas Montagu rejected suggestions that the PPI mis-selling scandal had been “manufactured” by CMCs, but then went on to call for additional regulation of CMCs by saying: “There is a need for firmer regulation of claims-management companies at the “cowboy” end of the industry.”
The FOS also revealed that they made 131 referrals to the former financial industry watchdog the Financial Services Authority in the 12 months to March 31 2013, a slight increase on the 122 such referrals made in the previous financial year. Many of these referrals concerned firms’ complaint handling procedures or delays in paying redress following upheld complaints.
260 CMCs had their authorisation removed by the MoJ between April 2011 and March 2012; and between April and November 2012, a further 209 firms lost their licences, while three firms were suspended and 140 received warnings. During the course of 2013, CMCs have been subject to additional regulatory requirements, such as being banned from issuing advertisements that offer cash inducements, receiving referral fees and entering into verbal contracts with customers. It is also now possible for a customer to refer a complaint about a CMC to the Legal Ombudsman if they are not satisfied with the company’s response.
Despite the introduction of these new measures, many politicians, consumer groups and industry commentators believe that regulation of the claims management industry is unduly lenient, and have called for the Financial Conduct Authority to be given the power to regulate CMCs.