The publication of this year’s annual report on Claims Management Regulation (“CMR”) shows that the Ministry of Justice is taking a very different approach towards Claims Management Companies (“CMCs”), particularly those operating in the financial services industry. Whilst last year’s report recognised the surge in PPI claims, this year’s report places a far greater emphasis on the practical problems that poorly prepared claims cause lenders and sends out a very clear message that those failing to conduct claims responsibly will face appropriate enforcement action.
In this year’s report, the Head of the CMR Unit, Kevin Rousell refers to the “significant challenges” facing the industry caused by PPI mis-selling complaints being conducted on an “industrial scale”. He recognises that all too often, CMCs have treated consumers as a commodity, failing to take into account the individual circumstances of the case. Consequently, lenders have been flooded with poorly prepared claims which not only lack the information needed to properly address the complaints, but also frequently include claims for policies that were not even sold. As a result, complaints systems have become “clogged up”, slowing down the entire process in which those with genuine claims are able to receive redress, causing unnecessary additional costs.
It is no coincidence that this increased recognition of poor quality CMC conduct comes at a time when the CMR Unit has been forging greater links with other regulators and representative bodies in an attempt to understand the day-to-day impact of CMCs’ practices. The CMR Unit has had a busy year continuing its information sharing work with the FOS and the FSA and gathering information needed from the major financial providers to help target those CMCs failing to conduct PPI claims appropriately.
The CMR Unit is also working with the Information Commissioner, the Direct Marketing Association, Ofcom, the OFT, the Telephone Preference Services and others from the mobile marketing industry to try and identify the source of the irritating unsolicited SMS text messages and automated calls advertising claims services. However, this is an area where further work is still required to uncover all those businesses involved in the chain of non-compliant information supply. In the meantime, the CMR Unit makes it clear that it will take a tough approach to any CMCs found making use of any data supplied by non-compliant third parties.
The statistics section of the annual report always makes interesting reading as it demonstrates in very real terms the extent of the problems facing the industry and the regulator’s appetite for enforcement:
- 3,007 CMC businesses were authorised as at 31 March 2012, 206 (6%) less than 2011.
- An additional 29 CMCs entered the financial services market this year, bringing the total number to 975.
- Turnover for CMCs in the financial services sector has increased from £189m to £313m. This still lags behind the turnover for personal injury at £455m per year.
- 93% of the 8,521 complaints received by the CMR Unit about CMCs relate to those operating in the financial services sector. This represents a slight decrease on last year’s figures (96.74% of 12,504 complaints received).
- 150 PPI audits have now been completed and 206 businesses had their authorisation cancelled over the last year bringing the total number of cancellations to 700.
What does the future hold?
The message is clear: the CMR Unit is committed to tackling the root causes of poor CMC conduct. Those CMCs who demonstrate a flagrant disregard for their obligations under the Conduct of Authorised Persons Rules 2007 will face the consequences. Like most public bodies, the CMR Unit’s resources are limited and many financial institutions are frustrated that it does not do more. However, it is a well connected machine, making use of its network to ensure that poor conduct is addressed. Those financial institutions who have invested time engaging with the CMR Unit, alerting them to non compliance should continue their efforts as this is time well spent.