It has become apparent recently that the PPI compensation gravy train is going to be making a much longer journey than many had anticipated. As Lloyd’s lays out £1.8bn worth of extra tracks, it has also emerged that a deadline is unlikely to be set by the regulators for the train to reach its final destination.
For consumers this is fair and right. PPI was missold on a massive scale after all. For ambulance chasing companies which are driving through many of the claims, this is a gold plated meal ticket. No regulation costs involved for them of course – even when wholly unjustifiable cases are thrown out, it is always the company on the receiving end of the complaint who foots the bill.
For many in the financial services sector, however, the inflated regulatory costs associated with the compensation culture are becoming too much to bear. The mortgage industry has seen many independent brokers and small firms leaving the profession altogether because of it. Many more have settled in favour of complainants because the cost of defending a claim was too great.
I am not here to argue against tough regulation however. Quite the opposite in fact. We need thorough regulation in order to protect consumers and maintain the strict codes of conduct required to deliver quality financial services.
But I would ask for some balance. Yes the consumer needs to be able to bring a complaint against any company or individual that they feel has not met the regulatory standards required of them. Yes this must also be a completely unrestrictive and free process. However, we also need to install a culture of financial responsibility for consumers.
The message needs to be clear that major financial decisions require great personal responsibility and there should be no easy get-out clause offered by unregulated companies via a bombardment of text messages and TV ads.
If you do not feel qualified to make a financial decision on your own, then by all means use the services of a regulated professional to advise you so that they can then be held accountable for that advice.
If it goes wrong and it is someone else’s fault then consumers need to know they can be protected. But if it goes wrong and it is their own fault, then consumers need to know that they will have to deal with the consequences.
Equally, professionals need to be secure in the knowledge that they can afford to defend themselves if the need arises and that the penalties are harsh if they are found to be in the wrong.
In the same vein, can it be right that the term for bankruptcy has been reduced to 12 months and in some cases only six? Where is the deterrent against reckless spending and risk taking?
The focus for the future must be on the best possible training to provide the best quality of advice.
In return, professionals must be able to protect themselves against excessive and false claims as long as they can prove they have met the exacting standards required of them.
We need to better inform consumers and this education must begin in the class room. That way consumers will have a useable understanding of financial products and will be better equipped to make their financial choices.
Martin Wade is director at Your Mortgage Solutions