Financial Guidance and Claims Bill [HL]

Written evidence submitted by Jon Platt, Managing Director, JMP Partnership (IW) Ltd (FGCB05)

I would like the opportunity to express my grave concerns that the Financial Guidance and Claims Bill includes an unnecessary and unhelpful clause that seeks to cap the fees charged by Claims Management Companies (CMC) and Law Firms working in the PPI claims sector. I believe this clause will have precisely the opposite impact that Parliament intends and result in thousands of jobs and hundreds of millions of pounds of tax receipts being lost.

I am the Managing Director of a CMC, a small family owned and operated business. We’ve been trading for 11 years and a significant proportion of the work we do relates to recovering mis -sold PPI for our clients. During that time we have been continuously regulated by the Ministry of Justice and never been sanctioned or reprimanded in any way. We have assisted over 10,000 clients and recovered in excess of £50 million and in 11 years we have received only two complaints by clients. Those complaints were both investigated by the Legal Ombudsman Service (LOS) and found to have no merit whatsoever. We weren’t even asked to pay the LOS complaint handling fee.

I say all of this because I want you to understand that my small family business is something I am very proud of. We do excellent work for our clients, most of whom could not have got their money back without our assistance. We are not crooks or parasites preying on the vulnerable or stupid as some people might have you believe. We do some highly complex work and provide a very valuable service to our clients. We have never sent a text message or made a cold call about PPI in 11 years of trading, indeed I asked the regulator a decade ago to stop these nuisance calls and texts as it was damaging to the reputation of our industry.

There may well be other CMCs who have behaved inappropriately but it feels that our entire industry is being tarred with the same brush. There is an unjustified prejudice against us all because of the actions of some who work within this industry. This legislation has all the hallmarks of ‘collective punishment’ and I have seen no evidence to justify this fee cap.

On the merits of the fee cap, let me explain what will happen if it becomes law. Firstly, my firm and no doubt many other CMCs, will abandon working on all the difficult or complex cases because we simply can’t make them pay at 20% nor can we cross subsidise them from the fees we make on easier cases. We will not be able to work on cases involving banks and credit card firms who mis -sold small amounts of PPI or on cases where it might be difficult to get data about the account due to the passage of time. We plan to stop work on cases involving about 30% of financial institutions. We will no longer be able to take instructions from discharged bankrupts or consumers who have been in an IVA or been subject to a Debt Relief Order. We will no longer take instructions from estate executors.

The impact of not working on the more difficult PPI cases will be significant. Consumers will miss out on refunds that may have been worth thousands of pounds to them. We will concentrate on the small number of cases where we have a high success rate. Ultimately we will need fewer people because we will do less work. Potentially we are looking at losing about 25% of our workforce the day this legislation passes. Prior to this legislation coming
to my attention we had just bought larger premises and we planned to hire more people. That is all now on hold as is investment in a number of areas.  We were about to spend thousands of pounds on an IT and phone system upgrade.  That has been shelved until we know what is happening with this fee cap.  

Can I also point out the impact this will have on the Treasury. If, as I suspect, this fee cap leads to hundreds millions of pounds of mis -sold PPI going ‘un-refunded’ the Treasury will be the biggest loser. As you may be aware, very significant amounts of tax are deducted at source by the banks from the interest element of any compensation they pay. I am sure HMRC will confirm that tens of millions of pounds are paid to them in respect of PPI compensation every year. This year my small family business paid around £500,000 in various taxes to HMRC including £216,000 of corporation tax and over £200,000 of VAT. Relatively speaking we are a tiny CMC. The six biggest CMCs must be paying tens of millions of pounds to HMRC every year. All of this is being put at risk for absolutely no good reason.

I accept in principle that there are times when it is appropriate for Parliament to step in and regulate prices. If, for example, there was insufficient competition in the market this might be justifiable but there are over 600 firms in the UK authorised by the regulator to work on PPI claims. The number authorised CMCs working in this sector (PPI claims) has been falling year on year since 2011 as many firms simply can’t make it pay. The number of new entrants is falling year on year because prospective entrants realise they simply can’t make it pay. This is a highly competitive market that is spending very significant sums on advertising to try and attract business and make customers aware of their right to PPI compensation. My firm typically charges 25% plus vat but some charge much less and we have lost clients to those firms over the years as some consumers choose their lower prices over our better service. That is exactly how functioning markets work and precisely how it should be.

Compare for example the CMC industry to the Isle of Wight ferry companies. Only two operators to choose from and Parliament, despite repeated calls from residents over many years, has never stepped in to regulate the prices they charge or restri ct the huge profits they make.

One of the biggest firms in this sector is The Claims Guys.  Their 2015 accounts show turnover of £47 million and net profit of £2.9 million.  They charge consumers a fee of 30% plus vat.  If this fee cap makes it onto the statute books their turnover will fall by £16 million and they will be insolvent overnight. That will be true for hundreds of firms in this sector.  If even a few hundred fold , the cost of regulation will fall on far fewer firms.  We already pay £15,000 a year to the regulator and if some of the big firms fold, we will not be able to stay solvent at fees of 20% AND a massive increase in the fees paid to the regulator.  You must see that I have absolutely no desire to see my competitors fail because I don't see any benefit if there is a fee cap.  If some of the big firms like The Claims Guys or Belmont Thornton fail we will not expand to take on the extra business because at 20% we can't justify the additional investment necessary to handle that additional volume.  We will simply turn people away and say sorry we can't help you because the fees we charge have be en capped so we can't expand. 

For some reason Parliament, specifically the House of Lords, thinks it is appropriate to regulate the prices charged by an industry that has over 600 competing firms? It raises the question, WHY? If the market is highly competitive with firms offering different services at different fees and hundreds of firms have gone out of business over the last few years (without a fee cap), why would Parliament seek to intervene? I have to say that I have a very strong sense that this legislation is being driven by pressure from the banking industry in an attempt to put many of the firms working in this sector out of business saving banks potentially billions of pounds compensation to consumers they defrauded. It hasn't gone unnoticed that the Minister who introduced this amendment at the third reading is a former Legal Coun sel to Barclays Bank Plc.

Can I end with this analogy. In 2009 the Daily Telegraph broke the news that a number of Parliament’s 650 MPs were making expenses claims that were, in some cases, fraudulent and in some cases simply inappropriate. As you know this caused public uproar and many of you will have felt a real sense of injustice at being tarred with the same brush even though you had done absolutely nothing wrong, or in some cases weren't even an MP when all this went on. That’s how this legislation feels to me. Parliament is seeking to tar an entire industry by the standards of some of the crooks who have operated within it. This fee cap is nothing more than collective punishment, lobbied for and directed by the banking industry. It is based on an unfair and unjustifiable prejudice about an industry that has helped consumers to recover billions of pounds, employed thousands of your constituents and paid huge sums in tax to the Treasury. I very much hope you will abandon the fee cap and at the very least meet with me to allow me to answer any questions you might have to inform your final decision.

I have copied this to BBC Radio 4s You and Yours programme because I think that the fee cap is a huge mistake and will lead to consumers missing out on hundreds of millions of pounds of compensation they ar e owed by the banking industry.

Kind regards,

Jon Platt
Managing Director 
JMP Partnership (IW) Ltd

January 2018


Prepared 1st February 2018