Claims management firms under fire over poor advice

Claims management companies (CMCs) have been told to clean up their act after an investigation uncovered evidence of misleading advice and a lack of transparency over charges.

Consumer group Which? has called for a clampdown on CMCs after a mystery shopping exercise found issues with every company investigated.

CMCs claim to boost consumers’ chances of securing compensation for mis-sold products including payment protection insurance (PPI).

Advertising by the firms has intensified in recent months following the end of a challenge by the banks against new rules on PPI mis-selling compensation. But Which? reveals today that many of the firms are misleading consumers, making false claims and using high-pressure sales techniques. Of the 25 claims handlers investigated by Which?, two-thirds failed to tell the caller that they could go to the Financial Ombudsman Service (FOS), which mediates in complaints against financial services companies.

Six firms insisted that consumers had a greater chance of success if they made their claim through a CMC rather than directly to the FOS, despite no evidence suggesting that that is the case.

The typical fee charged by CMCs is about 30 per cent of the compensation received, whereas consumers get all of the compensation due if they take the case to the FOS. Which? has previously estimated that people using CMCs typically lose about a quarter of their payout to fees.

Its exercise found that three CMCs charge upfront fees, with some asking for payment over the phone. People using CMCs could get less compensation than they expect or even end up owing money, claimed Which?, as a number of claims handlers include a reduction in future PPI loan payments as part of the redress paid. Around half of consumers who have used a CMC were cold-called, a practice that Which? wants banned.

CMCs are not regulated in Scotland, but while complaints haven’t been made against Scottish CMCs, many of the firms covered by the Which? investigation advertise heavily north of the Border.

Which? called on the Ministry of Justice, which regulates CMCs in England and Wales, to clamp down on firms that fail to adhere to its rules. It also wants a ban both on upfront fees and on claims that using a CMC improves a consumer’s chances of a payout. Terms and conditions should be made freely available and consumers should be told upfront that they can make their complaint free of charge through the FOS, Which? added.

Richard Lloyd, the executive director of Which?, said: “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 Ministry of Justice taking swift enforcement action where appropriate, based on the findings of our investigation.”

Michael Goldstone of Brunel Franklin, one of the firms criticised by Which?, said: “Brunel Franklin takes regulatory compliance and customer service extremely seriously indeed.

“If an operator breaches any code or regulation, we deal with it appropriately as soon as it is brought to our attention; the importance of adhering to the rules is explained to all staff.”