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Do banks need to kill off the claims firms they created?

The claims management industry was no doubt rubbing its hands with glee when the Financial Services Authority announced that lenders must reimburse those who were mis-sold payment protection insurance.

A number of lenders have now said they will deal with these complaints as efficiently and quickly as possible, but that will not stop some claims firms from cashing in.

Some three-quarters of PPI complaints to the Financial Ombudsman Service now involve claims management companies.

The chief executive of the Financial Ombudsman Service used her speech at the British Bankers’ Association conference today to tell banks that they created the firms and it is their job to eradicate them.

Natalie Ceeney, chief executive of FOS, told delegates: “In the last decade we’ve seen the emergence of claims management companies. In financial services, these companies were born out of mortgage endowment mis-selling.

“The opinions I hear expressed about claims management companies range from the unprintable to the view that they’re a more powerful corrective force than the regulator.”

She told banks that the easiest way for them to wipe out claims firms would be for them to change their attitude and instead of hiding from complaints tackle them head-on.

No doubt there are some consumers who will feel more comfortable paying a claims firm to deal with their case and handle all the work for them, but for every good claims firm another bad one sits alongside it.

And although the Ministry of Justice is responsible for regulating the firms it is not comparable to the kind of regulation that lenders and brokers have to abide by under the FSA.

It looks unlikely that tougher regulation is on the cards as the claims management industry spans not just financial services but other sectors, which would be out of the FSA’s reach.

It ultimately would work to the benefit of banks if they can try and crack down on these firms by improving their complaints procedure. If they fail to be helpful to those complaining they will only throw them into the arms of claims management firms further.

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  • Robin 30th June 2011 at 9:46 am

    These parasites are everywhere, not just financial services. They appear wherever a bureaucratic regulator, with no understanding of what they are regulating, is set up to ‘feed’ off the people providing a service. It’s whole reason for being there is forgotton as it continues to cause disasters in order to prove its worth. This nanny state philosophy was supposed to be going with our last govt but I see no change. People should have responsibility for their own decisions, then we would get rid of all these pointless jobs. (FSA)

  • D 29th June 2011 at 5:35 pm

    MMM Liz lets get this right. Bank sells a single premium ppi to customer for lets say £10000. Customer is self employed and could never have claimed on the policy. Bank charges interest on the single premium through the term of the loan and gives no redemption in fact has redemption penalties if the loan is repaid early. The bank also take 78% commission on a ppi you could not claim on. Client complains bank tells them to get stuffed, client goes to claims management company – now let me see who robbed who ?. If you stole from a bank like that you wouold be sent to prison. Why do you think the banks just lost and did not appeal ? Other claims you may have a point but ppi ? I think you picked the wrong subject !

  • Dave 29th June 2011 at 5:04 pm

    Interesting comments so afr and there is no doubt that the activities of CMCs generate strong arguments on both sides.

    Undoubtedly, there are unscrupulous and unprofessional CMCs that the MoJ has been slow to take action against.

    However, it cannot possibbly be the role of the Ombudsman to call for the eradication of independent firms not under its jurisdiction – especially by the big banks who created the problems by excessive greed and poor sales practices in the first place.

    It would be equally as valid to call for CMCs to eradicate the big banks.

  • Donald 29th June 2011 at 4:37 pm

    The only way to stop those CMC’s that don’t deal with cases properly referring spurious cases to FOS would be to make them (not the customers they represent) pay the FOS fees for any cases where the FOS agrees with the ‘accused’.

    Would need an Act of Parliament to introduce this though so don’t hold your breath even if you think its a great idea.

  • Liz 29th June 2011 at 4:32 pm

    Dermot, you’ve been waiting 12 months? That’s nothing – I just got a reply on a case that’s been going on 2 and a half years! Don’t expect an answer any time soon…

  • Mortgageboy 29th June 2011 at 4:28 pm

    I agree the claims culture is casting a dark cloud over financial services, will advisers ever retire without a worry?

  • Liz 29th June 2011 at 4:21 pm

    These companies are parasites. I deal with the ambulance chasers all the time, they can barely string two words together, let alone put forward a comprehensive case of mis-selling. Not once has FOS ordered me to refund premiums on a PPI ‘complaint’. They’re now jumping on the mortgage bandwagon too, a few weeks ago I had a CMC complaint stating we shouldn’t have remortgaged their client because they paid £650 in fees, I proved they were over £10,000 better off, and now had a repayment mortgage instead of interest only but they went straight to FOS – and we’re £500 lighter in the pocket as a result. Something needs doing to stop these ‘reckless claims’ as it will soon put the smaller brokers out of business

  • Dermot Brannigan 29th June 2011 at 4:20 pm

    An interesting point of view. It’s also true to say that if you’ve ever dealt with the FOS before then you can see why some consumers would want to be thrown into the arms of the claims companies.

    Almost 12 months I’ve been waiting for an answer on a complaint, and I’m still waiting….