Claims to mutual lenders have soared in the six months to the end of April 2012, up by 247% on the previous six months.
This is despite warnings from the claims company regulator, the Ministry of Justice, that basic checks must be made before a claim is lodged. The BSA has no confidence that rogue claims firms will comply and is now calling for tougher action.
Claims firms have stepped up their bombardment of lenders and the Financial Ombudsman Service with bogus, non-sale claims where the firm never sold the product to the consumer – a move which is having a detrimental effect on the mutual sector.
Adrian Coles, director-general of the BSA, said: “Looked at from the perspective of our highly regulated sector some claims management companies look remarkably like the modern day equivalent of highwaymen.
“The Ministry of Justice warning in August 2011 was clearly ignored.
“If anything some claims management firms have stepped up their irresponsible, speculative scattergun approach to non-sale claims.
“We have little confidence that their latest communication will have any effect either.”
STRONGER ACTION
Coles says stronger action is needed if claims companies are to stop misleading consumers and “putting a pointless and growing administrative burden” on BSA members and the Financial Ombudsman Service.
And he added: “It is clear that the Ministry of Justice simply does not have the powers that it needs to effectively control the rogue elements in this industry.
“They do not even have the power to fine. Mutuals were minor players in PPI and this can be seen by the fact that just 4% of PPI complaints to the Financial Ombudsman Service related to a mutual provider.
“That said, we are never complacent and I would say to any consumer who did buy such a product from a mutual and believes that it was mis-sold to go direct to their provider to complain.
“There is no need to go through one of these companies and sacrifice 25% or more of the compensation from a successful complaint.”
PRESSURE SELLING
Figures from the BSA show 22,441 consumers have effectively misled into believing that they have a valid claim with an expectation of compensation.
The BSA also say that there is increasing evidence of pressure selling tactics by some claims firms, sometimes on doorsteps and particularly directed towards elderly or vulnerable consumers.
Some demand an up-front fee from the consumer, even when there is no prospect of success, fail to disclose the percentage success fee that they take, or use the phrase ‘no win no fee’ and still make some charge in the event of ‘no win’.
The BSA lodged a complaint about the behaviour of certain claims companies with the MoJ in March 2012. Since then data from BSA members has shown that the situation has deteriorated even more.
The BSA said: “The MoJ must be given as a matter of urgency the power to fine, a power that other regulators, such as the Financial Services Authority and the Office of Fair Trading have available to them. It seems at best illogical that a Government regulator has far fewer powers than independent regulators.
“Claims management company clients must be provided with a powerful ombudsman scheme so that they can complain effectively about malpractice.
“It may not be necessary to set up a brand new Ombudsman to deliver this consumer protection. The BSA believes that the MoJ may be considering bringing claims companies under the remit of the Legal Ombudsman Service. If true, the BSA would support such a development.
“Claims companies should have to pay a fee to the FOS in cases where their claim proves to be bogus. Currently there is no incentive for a claims company to check that a claim relates to an actual product sold.”
