BBA cautions consumers on claims handlers

Too many companies still lure customers with the hope of striking out their debts without any evidence they can do so, while others demand upfront payments, the GfK NOP survey shows.

The report, based on a "mystery shop" of claims management companies (CMCs), offers an insight into this rapidly-growing industry:

• some companies are targeting vulnerable consumers in financial difficulties, promising 'compensation' but not highlighting key risks such as the possible damage to credit ratings from county court judgements;
• advertisements can mislead consumers with "no win, no fee" pledges, and some firms offer unrealistic timescales for the claims process and unsubstantiated success rates;
• there are no requirements for claims handlers to hold any qualifications, so some show significant knowledge gaps and can provide incorrect advice.

The study also found that many clients are not being told about alternative mechanisms to resolve their claims, such as the Financial Ombudsman Service. Customers should always approach their bank first with a complaint. If it cannot be resolved, then the bank will advise customers of the other options open to them (including the Ombudsman which offers a free service).

The survey concludes: "There is clear evidence of CMC clients suffering as a consequence of using the services of a CMC. There are few instances of clients being warned about these potential consequences (e.g. the possibility of poor credit rating or a CCJ) and there is even evidence to show that, in some cases, CMC representatives are advising clients to change their behaviour (in relation to debt products), which could have negative repercussions. There is also evidence to suggest that, for many clients, if they had been warned of the risks or were aware of the alternatives, they would have been unlikely to use CMC services."

Eric Leenders, executive director for retail banking at the BBA, said: "Consumers should be free to take professional advice to help them, but what was once a legal service is now becoming a mass-market industry and that brings with it some significant and fundamental quality control problems. If customers feel they need help progressing a complaint, they can find real help from reputable and reliable sources. As a first step, they could consult The Banking Code, which provides a list of free debt advice services which can offer real help.

"The best advice is, as always, that if something sounds too good to be true, it probably is. Nobody can make debt disappear, but there are many people who are committed to providing quality advice and support."