Bogus PPI claims soar
The growing menace of claims management companies (CMCs) has been highlighted by a massive rise in bogus claims for mis-sold payment protection insurance (PPI) to mutual lenders.
Figures from the Building Societies Association reveal that in the six months to the end of April 2012, bogus PPI claims to mutuals have soared by 247% on the previous six months of May to October 2011.
The number of consumers misled into believing they have a valid claim with an expectation of compensation rose to 22,441 between November 2011 and April 2012 among the eight largest BSA members. The percentage of CMC claims made that were non-sale claims stood at 57%.
This is despite warnings from the CMC regulator, the Ministry of Justice (MoJ), that basic checks must be made before a claim is lodged. The MoJ issued a warning in August 2011 and repeated it in June 2012.
But rather than heed these warnings, some CMCs stepped up their bombardment of lenders and the Financial Ombudsman Service (FOS) with bogus claims where the firm never sold the product to the consumer.
The mutual sector has no confidence that rogue CMCs will comply and is calling for tougher action. It wants the MoJ to be granted stronger powers to regulate these organisations.
In March the BSA lodged a complaint about the behaviour of certain CMCs with the MoJ. Since then data from BSA members has shown that the situation has deteriorated even more.
Power to set fines
The BSA wants the MoJ to be able to fine rogue CMCs. Other regulators, such as the Financial Services Authority and the Office of Fair Trading, can set fines so it seems illogical that a government regulator has fewer powers than independent regulators.
An ombudsman scheme is needed so people can complain about CMC malpractice. The BSA believes that the MoJ may be considering bringing CMC's under the remit of the Legal Ombudsman Service. If true, the BSA would support such a development.
Fees to FOS
CMCs should have to pay a fee to the FOS in cases where their claim proves to be bogus. Currently there is no incentive for a CMC to check that a claim relates to an actual product sold.
The MoJ consultation on strengthening CMC conduct rules which was scheduled to start at the beginning of 2012 must now get started, says the BSA. As a minimum, up-front fees, cold calling, full pricing transparency, service standards, professional case handling, and ‘fishing expeditions' must be addressed. A requirement for written contracts should also be introduced.
The BSA welcomes the proposed Code of Conduct from the Claims Standards Council but remains sceptical that a voluntary industry-led code will make a meaningful difference given that rogue firms ignore the current MoJ conduct rules. What is needed is a Code of Conduct backed by the teeth to enforce it.
Adrian Coles, director-general of the BSA, said: "The Ministry of Justice warning in August 2011 was clearly ignored. If anything some claims management firms have stepped up their irresponsible, speculative scattergun approach to non-sale claims. We have little confidence that their latest communication will have any effect either.
“Much stronger action is needed if these companies are to stop misleading consumers and putting a pointless and growing administrative burden on BSA members and the Financial Ombudsman Service.
"It is clear that the Ministry of Justice simply does not have the powers that it needs to effectively control the rogue elements in this industry. They do not even have the power to fine.
“Looked at from the perspective of our highly regulated sector some claims management companies look remarkably like the modern day equivalent of highwaymen.
"Mutuals were minor players in PPI and this can be seen by the fact that just 4% of PPI complaints to the Financial Ombudsman Service related to a mutual provider.
“That said, we are never complacent and I would say to any consumer who did buy such a product from a mutual and believes that it was mis-sold to go direct to their provider to complain.
“There is no need to go through one of these companies and sacrifice 25% or more of the compensation from a successful complaint.
"Moving forward the BSA is joining forces with Which?, Moneysavingexpert.com and others. If the claims management industry is to be with us for the long term it must have credible and robust regulation."
The eight largest BSA members are: Nationwide Building Society, Co-operative Banking Group and the Yorkshire, Coventry, Skipton, Leeds, West Bromwich and Principality building societies.