Ministry of Justice - Claims Management Regulation – Proposals for amendments to the Conduct of Authorised Persons Rules
Only a handful of credit unions provided Payment Protection Insurance (PPI). Of those that did, credit unions’ selling practices were significantly more transparent than those that have resulted in the PPI mis-selling scandal in the banking sector; the product was sold separately to the credit agreement (rather than rolled together) and the full terms, conditions and limitations were explained. Furthermore, the insurance company which provided the insurance – CUNA Mutual – has carried out benchmark assessment of the product and concluded that its terms and conditions are market-leading. This is all entirely in line with credit unions’ ethical business model as set out above and supported by the Government.
Despite this, many credit unions – even those that never sold PPI – have received complaints on behalf of their members from Claims Management Companies. Many of these complaints reproduce large amounts of standard information, are not based on the specifics of the case at hand and are entirely speculative in nature. Generally they conflate the issues that have given rise to large scale compensation being paid in the banking sector with the sale of PPI by credit unions despite this not corresponding to the facts.
Credit unions also generally offer a free Loan Protection product which, in most cases, will – in the event of a borrower’s death during the life of the agreement – pay off the remaining balance of a loan in order that those surviving the borrower are not burdened with resolving the outstanding balance. Credit unions pay for this service as a group policy covering all or a proportion of their loans and do not charge anything to the member in relation to it. However, some credit unions have received complaints from claims management companies in relation to this product also, again conflating the issues seen in the mis-selling of PPI which are even less relevant here than in cases where PPI has been sold.
Given the above, and the poor practices that it exposes in the claims management industry, we would like to express our full support for all of the measures proposed to tighten regulation in the industry.
We feel, however, that there is a significant omission in the regulations as they are currently drafted. At present they focus entirely on the protection of the consumer and pay no regard to protecting businesses from the actions of claims management companies engaged in spurious and speculative claims activity which, though unsubstantiated, must still be dealt with according to policy and with full professionalism. To do so incurs significant costs on the part of firms and damages the interests of our members who operate in a highly competitive industry and, being small, community institutions, are already constrained in terms of the resources they have available.
Even where complaints have been fully and properly dealt with and shown to be materially unsubstantiated, our members have experienced the standard practice of claims management companies taking claims to the Financial Ombudsman Service regardless. The consequence of doing so, despite a complaint being baseless, is that the credit union must pay a fee to the Ombudsman to cover its costs of £500. In addition to the labour costs incurred in dealing with the complaint, this can far outstrip the profit produced from the loan and PPI concerned combined.
Whilst we agree that the primary focus of the regulations should be to protect the consumer, we feel strongly that there ought also to be protections for businesses to which complaints are made. Dealing with such complaints is time-consuming and costly and though we accept the right of any person to complain where they feel they have not received the service they should be able to expect, it cannot be right that unscrupulous claims management companies can harvest potential complaints on false promises of owed compensation only to submit entirely standard, unsubstantiated complaints on their behalf without any or with only minimal recourse to the facts of the particular case. Where such practices occur, there ought to be clearer protections for businesses in receipt of these complaints upon which our members can draw to protect themselves against such activities.
We would like to see, therefore, regulations introduced which enshrine the right of those in receipt of complaints from claims management companies to expect reasonable efforts to have been made to base complaints in the specific facts of the case, not to be based on irrelevant standardised information and to only submit complaints which have at least some basis in a reasonable belief of wrongdoing. Businesses should be expressly and directly protected from receiving speculative, standardised complaints which have no basis in material facts of a specific case.
We appreciate that, in tandem with the Financial Ombudsman Service, guidance around such practices in relation to PPI has been issued which is largely to the effect of that requested here and this is welcome. However, this does not amount to the same as specifically and directly enshrining such protections in the regulations themselves. To do this would give much more force to the expectation that claims management companies only bring genuine complaints, containing full facts of the case in question and based in a reasonable belief of wrongdoing which rightly deserve a full response from the firm in question.
Furthermore, we would like to see more robust enforcement efforts to stamp out malpractice in the claims management industry and a clearer avenue for redress for affected businesses. Taken together with specific regulatory protections, we feel strongly that if businesses in receipt of complaints were better able to highlight malpractice on behalf of claims management companies this would greatly improve the standards in the industry since individual persons often experience difficulty in or are disinclined to bring complaints against such companies where a firm would be better equipped and more inclined to do so.
The full response is available to download on the right