The City watchdog is very keen on throwing its weight around these days, in what may be considered a futile bid to obscure its failures.
As financial advisers, mutuals and many modestly-sized firms will tell you, the Financial Services Authority (FSA) has cranked up its enforcement activities several gears over the past three years, all too often aiming at the wrong targets.
As an unimpressive attempt belatedly to compensate for its timidity and incompetence in the run-up to the banking crisis, it’s counter-productive. It’s also a rage against the dying of the light as it prepares to give way to the Prudential Regulation Authority and the Financial Conduct Authority next year.
Yet the regulator, for all its breast-beating, continues to let claims management firms – ambulance-chasers, if you prefer that sobriquet – run rings around it. These are the companies making millions from convincing people to process complaints through them that could easily be made without assistance.
The payment protection insurance (PPI) mis-selling scandal has been the making of the firms. Countless warnings from the industry, consumer bodies and press over the way in which they’re ripping people off have done nothing to check their growth.
Now building societies have warned that claims management firms continue to ignore warnings from the regulator (as they would, given the amount of money they’re raking in as a result).
The Building Societies Association has revealed that its members saw bogus claims for PPI compensation soar by 247 per cent in the six months to the end of April. Amazingly, more than half of those claims were submitted by people who had never even taken out PPI.
Building societies also reported an alarming rise in the number of elderly and vulnerable customers being targeted by claims handlers. The firms are increasingly taking the reprehensible exploitation route, convincing people in hardship that free money could come their way if they would agree to make a claim.
The FSA doesn’t regulate claims management companies per se, but it does regulate many firms that have claims management operations. It can also do a lot more to raise awareness of the correct channels for complaints, rather than leave many consumers under the impression that the process is too complicated.
Claims management firms are adept at capitalising on the confusion that exists over PPI, to the extent that they have somehow convinced thousands of people to file for compensation even when they’ve never bought the product. They’ve also managed to create the impression that their services are free, when in fact they typically take 25 to 30 per cent of the redress pay-out as commission.
Similarly, they brag that people have a greater chance of success using claims handlers than going direct. That is certainly not the case, but the FSA, which can take action over misleading advertising, has still done virtually nothing.
The FSA has relatively limited powers to intervene, but it’s failing to wield the influence that it does have. With the Ministry of Justice – which oversees claims management companies in England and Wales – proving impotent, perhaps the FSA should be given greater powers to step in.
Earlier this year, the FSA told banks to write to another 12 million people to tell them they may have been mis-sold PPI. It has helped create the problem by badly over-estimating the ability and will of the banks to deal with the flood of claims they’ve received. It must now take more responsibility for preventing claims handlers from making an industry scandal even worse.
Borrowers have in recent years felt uncomfortable with the idea of tying themselves into mortgages of more than two or three years. If you’re sitting on your lender’s standard variable rate waiting for the right deal to come along, however, a five-year deal could be worth thinking about.
HSBC may yesterday have kicked off a new price war by launching the cheapest five-year loan on record. At 2.99 per cent, it’s unlikely that by tying in for five years you’re going to miss out on a much lower rate in future. Other lenders are likely to follow suit by slashing some fixed rates, but if a cheaper five-year rate comes along, it’ll be a very marginal improvement.
As always, however, there’s a caveat. For starters, any cheap mortgage these days will come with hefty charges. With an arrangement fee of £1,499 this is certainly no different. It’s also restricted to borrowers with at least a deposit or equity of 40 per cent.
It also remains to be seen how many people are actually accepted for this deal. Lenders may be promoting competitive rates, but they’re cherrypicking borrowers like never before.
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Wednesday 22 May 2013
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