Regulators issue consumer guide on dealing with claims companies
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The Financial Services Authority and the Ministry of Justice have issued joint guidance with the Financial Ombudsman Service and the Financial Services Compensation Scheme to warn consumers about the dangers of claims firms.
They advise consumers to seek free advice from the FOS in the first instance and to shop around if they use such firms.
The online guidance says: “Most claims firms that charge an advance fee will still require a percentage of any compensation you receive at the end of the claim and this can be as much as a third of compensation to which you are entitled.”
It adds that in some instances, a claim firm’s fees may be higher than any lump sum compensation received by the client.
The guidance came as the MoJ released its annual report for 2010/11 into the claims management industry last week. It has revealed that it is receiving a large number of payment protection insurance complaints from consumers and financial institutions.
The MoJ says it is disturbed to see some claims firms charging upfront fees, with a number of them unfairly refusing to refund fees or delaying refunds until a later date when the case is unsuccessful.
It conducted an audit programme of 16 businesses during the second half of the year. As a result it has suspended a number of firms and some are still under investigation.
Kevin Rousell, head of claims management regulation at the MoJ, says: “We received a large number of complaints from financial institutions concerning the practices of authorised businesses dealing with claims for mis-sold PPI.
“Although limited resources make it impossible for us to investigate every complaint, we use the information we receive to identify trends, crucially where a business is systematically breaching the rules.”
The report also reveals that it is seeing a rise in firms specialising in mis-sold mortgage and investment claims and it is continuing to monitor these areas.
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