The Government is keen to show it is finally clamping down on unscrupulous claims management firms with the Legal Ombudsman set to take responsibility for dealing with consumer complaints this year.
However, strong action from advisers faced with fraudulent or frivolous claims could be the most effective way of making firms think twice before stirring up unjustified complaints.
The Ministry of Justice says it closed down 209 claims firms between April and November last year. In its annual report for 2011/12 it revealed over 400 firms had been warned, suspended or had their authorisations cancelled.
The same report revealed complaints against financial services claims firms made up 93 per cent of all complaints, despite making up just 17 per cent of firms.
The MoJ has set up a specialist unit to investigate PPI claims firms with an estimated 900 firms now targeting financial services. Later this year the Legal Ombudsman will be given powers to award redress of up to £30,000 to consumers who believe they have been mistreated by claims firms, likely to be funded by case fees paid by the claims company. At present, consumers can complain but the MoJ has no redress powers.
These are all small steps in the right direction but they ignore the business costs to advisers of having to deal with complaints which have no foundation.
Perhaps it is time more advisers followed the example of Steve Foreman of GraingerCo Financial Services. After receiving a complaint solicited by a claims firm, with virtually no information about the nature of the complaint, Foreman asked the claims firm for some more information so he could investigate it properly.
After being ignored twice he complained to the MoJ, who offered little hope of taking the complaint seriously, then invoiced the claims firm for the time it has taken him to deal with a complaint.
Alongside the invoice for £120 was a threat to take the claims firm to court if it was not paid within seven days. A week later the invoice was paid along with a letter suggesting the claims firm had been supplied with incorrect information.
Advisers’ time is a valuable commodity and for too long claims firms have been able to waste it with spurious complaints about policies they often never advised on. The best way to make such firms listen is to hit them where it hurts – in the pocket.