The Building Societies Association (BSA) wants the Ministry of Justice to be given ‘teeth’ to regulate claims management companies (CMCs) in response to a rise in “bogus” PPI claims.
The BSA lodged a complaint about the behaviour of certain CMCs with the MoJ in March 2012. However, since then data from BSA members has shown that the situation has worsened. The BSA is now calling for the MoJ to be granted stronger powers to regulate these organisations.
Bogus claims for mis-sold PPI made by CMCs to mutual lenders have soared in the six months to the end of April 2012, up by 247% on the previous six months.
In addition to the last resort power to strike a firm off, the BSA says the MoJ must be given as a matter of urgency the power to fine, a power that other regulators, such as the FSA and the Office of Fair Trading have available to them.
The BSA also says CMC clients must be provided with a powerful ombudsman scheme so that they can complain effectively about CMC malpractice. Currently consumers using a CMC have far less protection than consumers in other sectors. It may not be necessary to set up a brand new Ombudsman to deliver this consumer protection, the BSA says. It 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.
The BSA also says CMCs should have to pay a fee to the FOS in cases where their claim proves to be bogus.
The MoJ consultation on strengthening CMC conduct rules which was scheduled to start at the beginning of 2012 must now get started. As a minimum; up-front fees, cold calling, full pricing transparency, service standards, professional case handling, and ‘fishing expeditions’ must be addressed, the BSA says, while it also is demeaning that a requirement for written contracts be introduced.
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%³ 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.”