Good to see Bank of England governor Mervyn King deploying the “wallflower defence” in his apologia to the BBC. He feels although the banking collapse was not the fault of the governor of the Bank of England, he might perhaps have tried harder to dance a bit with all the fast and loose, and that might in the end have helped stop the party from being such a flop. That he got away without having to resign is thanks to Gordon Brown’s 1997 crashing together of regulatory responsibilities, which left loads of wriggle room. New systems do that until they are seriously tested and I fear there is no way we can know the short-comings of George Osborne’s decoupling of macro and retail regulation until the cracks are exposed by some future malfeasance.
The inevitable trouble with regulation is as soon as its limits or gaps are discovered, the worst traders steam off to exploit the opportunity. Regulation has to have a boundary and it is just beyond that boundary that consumer detriment breeds and mutates. We have seen this again with the boom in claim management firms that mushroomed in the gap between the FSA and the Ministry of Justice. Worst practice proliferated, until the highly motivated British Bankers’ Association put the political squeeze on the MoJ which is now shutting down firms like a Whack-a-Mole player at the fairground.
Notwithstanding that remedial action, the abuse goes on. It is amazing that the claim industry can get away with what it does. It is a bit like it was watching and shouting to the regulator about payment protection insurance sellers years ago. You will have read elsewhere of the tactics and cons being used and the eye-gouging prices when the thing can be done for free but the latest consumer detriment is the automatic instruction to cancel proper income protection cover. That sort of scorn for consumers demonstrates the culture is hard-sell at its hardest and most systemic.
The irony is it is regulatory effort that fertilises this crop of opportunist traders. They are almost nomadic in their wandering from one rules-caused boom market to the next. A great many of the players in PPI claim management are veterans of Ken Clarke’s no-win-no-fee accident claims boom and Hector Sants’ unsecured loans megaboom. We have even met some of them; who, for a few years, settled on protection indemnity commission as their money-spinner, before moving off to the new clawback free pastures of PPI claims.
The question the regulator should be asking is where the nomadic hard-sell opportunists will alight next. They might like to look at the protection start-ups happening just as the PPI claim boom starts to peak. Providers too, should check carefully the business plans and methods of those whose protection business now starts to grow rapidly in, for example, the PPI claim business heartland of Manchester.
They will find a key asset: a database of those susceptible to sales pitches, once those of PPI sellers, and then those of overcharging claims managers. And if they look past the business plan flannel they will find a core methodology of high-pressure selling totally focused on earning quick commission without regard at all to client outcomes or regulation. We saw it all when this crowd passed through before and, in the absence of any other opportunity, many will return for more. This time I hope many decent distributors will simply stop trading with providers that support worst practice. Watch out!
Tom Baigrie is chief executive of Lifesearch