Which? is calling on claims management firms to clean up their act after an undercover investigation by the consumer watchdog found misleading advice and unfair contract terms to be commonplace among such companies.
Posing as someone who thought they might have been mis-sold payment protection insurance, Which? mystery shopped 25 claims firms and identified problems at every single one.
It found that most of the firms did not follow the rules set out by the Ministry of Justice, and that two thirds of the companies failed to advise the caller about the Financial Ombudsman Service, despite being required to do so.
Six firms repeatedly told the caller they had more chance of success or would receive more compensation using a claims firm than by submitting a claim independently.
Which? says that WeFightAnyClaim told the caller they had over a 90% chance of claiming through them, or under a 10% chance of claiming by themselves.
Which? says there is no proof that this is true, and that claims firms are prohibited from making such statements.
The investigation also found that three of the firms – Aims Review, WeFightAnyClaim and Tucan Claims – charge upfront fees, and some asked callers for payment over the phone.
Which? and MoneySavingExpert.com are calling for both cold calling and asking for payment over the phone to be banned, as they believe these practices can created a pressured situation where consumers are unable to consider their options.
Which? also says that the investigation found many firms’ contract terms to be unfair.
It says the typical fee charged by a claims firm is 30% of the compensation received (25% plus VAT), but the definition of compensation varies. It says that consumers might assume the fee would be calculated based on the lump sum of money paid to them, but some firms include a reduction in future loan repayments as part of the compensation, meaning some people could receive far less than they expect or end up owing money to the claims firm.
Richard Lloyd, executive director of Which?, says: “Claims management companies must clean up their act. All too often, consumers are being misled about their chances of success and how much they’ll have to pay – the last thing people need if they’ve already fallen victim to the PPI mis-selling scandal.
“We look forward to the MoJ taking swift enforcement action where appropriate, based on the findings of our investigation.”
Martin Lewis, creator of MoneySavingExpert.com, adds: “Even if the claims handling companies all played it by the book, with mis-sold PPI payouts of £3,000 to £5,000 now being commonplace, the price charged is far too high.
“Reclaiming is easy for many, just a case of making a call or writing a letter. Yet claims handlers often charge over 30%, which for many means losing over £1,000 of their payout and for most, it’s just not worth using these firms.”
On Monday Mortgage Strategy launched its Make Claims Firms Pay campaign, calling for claims firms to be made to pay for unsubstantiated claims against brokers. To sign our e-petition click here.