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Peter Hamilton: A call to arms against the scourge of claims firms

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Here is a call to arms! Let us all do something about the scourge of claims management companies in the field of financial services.

A number of Members of Parliament are interested in getting something done. So at least let us contact our MPs and say what our experience with CMCs has been, and what our suggestions for improvement are.

But also do not miss the opportunity to make the connection between CMCs and the FOS, and to press the case for the reform of the FOS along the lines set out below.

There is a substantial amount of anecdotal evidence that CMCs are a scourge. Probably every reader will be able to support or add to, the following list of problems:

  • Frequent and random cold-calling by telephone, throughout the day and well into the evening.
  • In the course of a cold-call, suggesting to the prospective client that he or she is entitled to a substantial named sum, for example, £17,000, when that figure bears no relation to the case under discussion.
  • Submitting a subject access request on behalf of the client as a way of fishing for information.
  • Charging the client a fee before establishing, on reasonable grounds, that there is a legitimate complaint to be made.
  • Requiring the payment of a cancellation fee which bears no relationship to work done. 
  • Presenting a claim to a firm when the firm has not sold the product complained about.
  • Alleging breaches of the financial regulators’ rules which are either unsupported by the facts of the matter or are inappropriate to the product in question.
  • Alleging breaches of the rules which appear to be cut and pasted from a pre-drafted menu of possible breaches.
  • Lack of experience or knowledge which results in a legitimate complaint being overlooked.

On 9 September 2013, there was a meeting at Portcullis House, Westminster, arranged by Ian Broadbent of Blue Sky Mortgages. It was attended by three MPs including Jonathan Evans, the Conservative MP for Cardiff North, about 20 financial advisers, members of the press and members of the staff of some other MPs, and was chaired by Nic Dakin the Labour MP for Scunthorpe. I was also there.

The purpose of the meeting was to generate support for the proper regulation and control of CMCs, and also to reignite support for the reform of the FOS.

There was general agreement that CMCs need to be properly regulated, in the same way that others who earn their living in the financial services industry are regulated. Although the Ministry of Justice tries to do its job, it does not have the resources.

There was general, but by no means unanimous, agreement that CMCs ought therefore to be regulated by the FCA. To become authorised as CMCs, applicants would need to show that they were fit and proper, had had appropriate training and held adequate capital resources. They would then also be subject to proper supervision and discipline. Everyone agreed that cold-calling by telephone or text should be outlawed – as is already the case with cold-calling in person.

And then we come to the question of the reform of the FOS. I had been invited to the meeting to outline the proposals that Anthony Speaight, QC, and I had set out in a paper we submitted to the Treasury in 2011 when it was carrying out consultations on the government’s plans for changing the way in which financial services are regulated. I outlined our proposals in two articles in Money Marketing a few months later. The Treasury paid no attention to our paper, and the FOS remains as it was. 

The proposals that Anthony and I put forward were based on the following main points. The FOS system is unfair and contrary to the rule of law, because: 

  • The FOS does not apply the ordinary law. Instead, the FOS decides a case on the basis of what he considers to be fair and reasonable even if the law requires a different result.
  • The rules of the FOS do not comply with the ordinary law in all respects; for example, there is no long-stop to prevent stale complaints from being made.
  • There is no appeal.
  • Contrary to the law, the FOS virtually never permits a dispute of fact to be resolved in an oral hearing held in public.
  • The complainant is not bound by the result, but if the complainant accepts the award, the adviser is bound by it. 

To meet those defects, we proposed that all cases going to the FOS should be decided by an adjudicator – as happens at present – but with the application of the ordinary law. In more than 90 per cent of all cases, the parties currently accept the outcome at this point. But if either party disagrees with the adjudicator, instead of the case being referred to an ombudsman, it would be reheard by a proper specialist tribunal, with the parties giving evidence in public and being subject to examination and cross-examination, with all the usual processes of a court, including appeals. The final result would bind both parties. All this could be done without cost to the complainant, with limited exceptions.

At the recent meeting, what I outlined was received politely by the MPs present, but Jonathan Evans MP said that while there was growing interest in dealing with CMCs, there was no parliamentary appetite for any changes to the FOS. He said that what united MPs of all parties in relation to financial services was the interest of the consumer, and the proposed changes to the FOS scheme were seen as not in the consumer’s interest.

That reaction has the air of political reality about it, but should be challenged by every firm in the financial services industry, large and small.

The practical reasons are simple. First, the aspects of the FOS process which Anthony and I believe need reforming are causing real and costly difficulties for all financial advisers. Any real and costly difficulty placed in the way of an adviser doing his or her job, which is to provide advice to clients, results in that adviser being less able to concentrate on giving advice.

Secondly, and importantly in this context, CMCs are part of the complaints handling process which, if not resolved by the firm against which the complaint is made, end up with the FOS. Thus, it makes practical sense for there to be an overall and thorough review of that whole process.

As a matter of tactics, the proper regulation of CMCs should be in the forefront of the current campaign, especially because a growing number of MPs are becoming involved. But no opportunity should be missed to make the point that the FOS operates outside the law, and that that must change.

We are not saying that financial advisers should be treated more favourably than all other advisers. But at present they are treated more harshly than all other advisers, and indeed more harshly than all other citizens in the UK. That is not fair, and is also contrary to the well-established cornerstone of our constitution: the rule of law. In other words that we are all subject to the law which we can establish in advance of taking any action.

But the FOS operates outside the rule of law.

Take up the challenge: get your MP onside.

Peter Hamilton is a barrister specialising in financial services at 4 Pump Court and co-founder of moneymatterslegal.co.uk

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Well said Peter!!!!! Brilliant to see that you are still pushing hard on this issue. Every adviser firm should be grateful.

    I agree that the reaction has the ‘air of political reality about it’ but I also agree that every firm in the financial services industry, large and small, should support this campaign and try and garner the support of their MPs.

    MPs tend to be interested most in matters affecting consumers – but at the end of the day, every adviser is themselves a consumer – so MPs need to understand that there are tens of thousands of people yelling for some support – and if advisers are not supported and subsequently go under, who will be there to give consumers the support that THEY need in future? In supporting this cause, MPs WILL be helping consumers!!!!!

  2. Very clear and well written article. Thank you for taking up the baton. I too feel that the way financial advisers are treated when a complaint is made does not apply the ordinary law. The burden of proof lays on the adviser to prove their innocence rather than the complainant to prove the advisers guilt. Therefore, what may well have been a perfectly reasonable piece of advice at a particular time in the past given the economic climate at the time is assumed to be at fault in light of today’s knowledge and a possible gap in record keeping, i.e. the paperwork. It seems clients are treated as being victims from the start with little responsibility for the decisions they have made simply by claiming wrong-doing. Don’t get me wrong, I’m not saying all advisers are angels, but at times it feels like we’re treated as less than professionals.

  3. Of course claims management firm will always take case to the FOS as it costs no money.
    I would propose that the FOS should be run on the same basis as the Small Claims Court procedure where a claimant has to pay a minimum fee for a case to be reviewed. If the claimant wins that case then the firm involved but have to re-fund the claimant. I suspect that if this system was introduced the number of complaints to the FOS would reduce dramatically particularly from claims management firms.

    I’ve never had a case go to the FOS but I understand that and IFA practice could have to pay £500 upfront whether they win or lose that is simply unfair.

    The other amendment I would bring in is an automatic fine system for companies that do have high upheld complaints records where referrals are made to the FOS. This would encourage companies to settle complaints where they know they have deliberately misled clients e.g. PPI. This of course would be on top of any compensation that would be due to the clients.

    We do have to realise that the majority of complaints are coming from bank assurance e.g. PPI and we as advisers should be calling for greater action against previous directors and senior managers who were in control functions in banks to be thrown out of the industry. We are where we are because of high pressure cultures this was not an accident it was by design and nobody seems to have paid a price for that design.

    Excellent article Peter

  4. I would very much like to be armed with something more substantial than I now have.

    I tried to draw the matter of a complaint about a product surrendered over fifteen years ago to Theresa May (who happens to be my MP) but she passed it to George Osborne who did a Pontius Pilate impression.

    Count me in though.

  5. Paolo Standerwick 23rd September 2013 at 6:19 pm

    I hope TOM O’CONNOR is reading this after seeing the facts about the FOS. All coming from 2 highly experienced people on law!

  6. The MoJ’s rules prohibit CMC’s from soliciting complaints by cold calling, but they commonly circumvent this by contracting out the task to unregulated third party firms. If the FSA is to do anything about this first stage breach of proper practice, it should require complainants to state unequivocally that they approached the CMC solely on their own initiative and that they were not cold-called or in any other way canvassed or encouraged to lodge a complaint.

    False assertions or statements by either party purporting to be fact that are found subsequently to be lies should be punishable by fines against the CMC. Any complaint should be supported by a copy of the adviser’s letter of recommendation, which would, in many cases, disprove any claim that, for example, appropriate risk warnings weren’t clearly outlined to the complainant prior to the completion of the application form. If the complainant cannot produce a copy of said letter, then the onus should be on him/her to prove that the relevant risk warnings were not provided. If the adviser has on file a copy of his letter signed by the complainant confirming having received and understood its contents, then it should be relatively easy to reject the great majority of complaints.

    And still we don’t know why the MoJ was given the job in the first place instead of the FSA. As I have posited elsewhere, my guess is that the FSA didn’t want to find itself in the position of having one foot on the throttle pedal and the other on the brake pedal. To find itself in such a position would have rather compromised what many consider to be its nakedly prejudicial agenda against small IFA’s ~ you know, the one that Hector Sants told the TSC that the FSA doesn’t have. I didn’t believe his denial at the time and nor do I believe it now.

    A few final questions ~ if the FSA does recognise that firm action needs to be taken against these opportunist parasites, will it consult with their victims and actually listen to what we have to say? Will it publish all responses to any consultation, for all to see and to debate in open forum? Or will it, as usual, just formulate its own agenda and brush aside all outside suggestions with a bland claim merely to have “taken them on board”? Time will tell.

  7. Peter,
    as a CMC manager you may be surprised to hear that I am in general agreement with your article. You may be surprised to hear however that I am similarly frustrated with FOS and their failure to have due regard for legal process and the very poor level of training that many of the more recently employed adjudicators have. I have advocated on previous threads that the FOS case fee should be significantly higher and that both parties should pay 50% with the winning party refunding the losing party on completion.

    The only point I would take issue with is the suggestion that a subject access request is inappropriate, This is often a useful tool to obtain relevant information to see whether a potential complaint would be appropriate. Often I see cases where a customer no longer has copies of their paperwork, make a DSAR and identify either that there was no sale of a PPI Product or that the sale was properly conducted. This actually stops the complaint being made which is surely in the best interests of all parties if there is no case to answer.

    The fact remains that the mis-selling of PPI was a blight on the industry and that in general this was not conducted by professional advisers but by commission hungry salespeople with little or no training employed predominantly by the larger lenders. In our business we see very few complaints against IFA’s or smaller building societies, the majority of complaints are against the major banks / card companies.

    Whilst it is easy to blame CMC’s for PPI complaints, the fact remains that if all sales had been appropriate with due diligence given to record keeping there would be no business for CMC’s and they would cease to exist.

  8. I took my missold claim for my nortern rock mortgage to FOS only to have endless requests for more facts from the other side revealed. I knew that a legal precedent was on my side, Wilson v Hurstanger was on my side in that the broker failed to reveal the total amount if commission he received from N orthern Rock, and in doing so was in breach of his fudicuary interest to myself to ensure that we received the best deal ant one that gave him the most favourable commission. Despite repeating this fact numerous times I was told that the decidion was not to ve ib my favour as the Ombudsman bases their decusions on what they believe to be “fair and reasonable” . Im faced having to pursue the matter via legal recourse, not helped by the fact that my bank was not prepared to pursue a claim againt Northern Rock although I had legal exoenses insyrance attahed to my house insurance. ! The FOS is not impartial, to me its like the old boys society, so to speak !!!!

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