Which?, MoneySavingExpert.com and the British Bankers’ Association have written to Justice Secretary Ken Clarke calling for tougher regulation of claims management companies.
CMCs have been criticised for charging up to a third of compensation payouts when consumers can submit their own claims to the Financial Ombudsman Service for nothing.
The letter, sent today, says regulation has failed to keep up with the growth of the sector and suggests there is “significant evidence” of rule breaking by claims firms. It adds that much of the compensation set to paid out to those missold payment protection insurance will be distributed this year so “urgent action” is needed and calls on ministers to meet with the three bodies to discuss how the Ministry of Justice will bolster CMC regulation.
It says: “It is essential that urgent action is taken to encourage better supervision, self-regulation, tighter regulation and enforcement against CMCs by the MoJ.
“We believe the Government has a critical role to play to help consumers and the industry by ensuring third party complaint handlers are properly regulated and bad practice is stamped out.”
Last week, the MoJ committed to improving its supervision of CMCs after a meeting with Labour peer Lord Kennedy. The meeting was the result of an oral question from Kennedy in response to which Lib Dem peer and justice minister Lord McNally admitted the department had to do more to crack down on “dodgy practices used by CMCs.
Earlier this month, FCA chief executive designate Martin Wheatley backed a marketing campaign by Which? and MoneySavingExpert.com against unscrupulous claims firms that charge consumers a fee without telling them there is a free alternative.
He said: “A significant proportion of these complaints have been driven by claims management companies, and I am sure they annoy you as much as they do me. There is no need for consumers to use a claims manager where it is free and easy to complain to a firm directly, so I welcome banks getting together with Which? and Money Saving Expert to make the process clearer and simpler for consumers.”
Financial Services Compensation Scheme figures published in January show 75 per cent of PPI claims were brought by claims management firms. The letter says that recent research by MoneySavingExpert.com and Which? found that only a quarter of people knew claims firms took a fee and only half knew they would be no more likely to have a successful claim by using a CMC.