Regulators have urged consumers to think carefully before agreeing to pass their complaints to claims management companies and to ensure they understand the fees they will be charged.
The FSA, the Claims Management Regulator, part of the Ministry of Justice, the Financial Ombudsman Service and the Financial Services Compensation Scheme have jointly published guidance for consumers and businesses on claims firms and financial services complaints.
The guidance sets out the various roles of the different bodies, and reminds consumers that they can go to the FOS for free to settle complaints.
It says claims firms can charge “significant” fees for their services, pointing out that in some cases consumers can be charged one third of the total compensation awarded.
The guidance also says consumers should be aware that compensation may be awarded in the form of a lump sum or as a reduction on amounts they owe, such as payment reductions on an outstanding loan.
A claims firm’s fees may therefore be higher than any lump sum compensation received by the client.
Claims firms must not engage in unsolicited electronic marketing, face-to-face ‘cold calling’ or in any form of high pressure selling.
The guidance tells consumers: “If you are considering a claims management company you should not be pressured into making any on-the-spot decisions, make sure you understand the fees the company will charge, and seek independent advice about making your complaint.”
It also reveals that less than 1 per cent of the FOS’ total caseload for 2010/11 was dismissed as ‘frivolous or vexatious’.
Firms who feel they are being unfairly targeted by claims firms can inform the claims management regulator.
The MoJ published its annual report on claims management regulation for 2010/11 yesterday. It reveals the MoJ refused nine applications from would-be claims firms, and suspended 10 firms due to factors such as fraud charges, irresponsible conduct and poor sales practices.
A total of 349 claims firms have had their authorisations cancelled by the MoJ over the past year.