Financial Guidance and Claims Bill [HL]

Written evidence submitted by The Consumer Finance Association (CFA) (FGCB10)

Financial Guidance and Claims Bill

CFA written submission to the Public Bill Committee

Introduction

1. The Consumer Finance Association (CFA) is the principal trade association representing the interests of major online and store-based short and medium-term lending businesses operating in the UK. The CFA is pleased to have the opportunity to submit written evidence to the Public Bill Committee on the Financial Guidance and Claims Bill.

2. This written submission focuses on Part 2 of the Bill – Claims Management Services.

Summary

3. CFA members deal with claims management companies (CMCs) on a regular basis. While some legitimate claims are handled by CMCs, it is more often the case that claims submitted to lenders are incomplete, incorrect or purely speculative.

4. The CFA supports the strengthening of regulation of CMCs, in particular the transfer of responsibility for regulating CMCs to the Financial Conduct Authority (FCA). This will mean that CMCs are subject to a robust authorisation process and ongoing supervision.

5. An effective transition to FCA regulation of CMCs is vital.

6. The FCA needs to take on the regulation of CMCs as soon as practicable. Any delay risks unscrupulous CMCs trying to take advantage of consumers. CFA members have reported a number of new CMCs entering the market recently, with these new CMCs paying scant regard to the current conduct rules.

7. Extending the proposed interim charge cap on PPI claims (clauses 27 and 28) will also be important in helping to ensure a smooth transition and adequate consumer protection during the transition.

8. With the market for payment protection insurance (PPI) claims becoming exhausted, CMCs are casting around for the next opportunity to sustain their business. The historic critical press reports and announcements by the FCA about short-term lenders making compensation payments to rectify past transgressions presented a potential opportunity to exploit the short-term lending market. This will only be exacerbated by an interim charge cap that applies to PPI claims only.

9. The CFA believes that the interim charge cap should apply to all financial claims. Limiting an interim cap to PPI claims only will simply encourage CMCs to focus their attentions on other types of claim.

Background

10. CFA members deal with claims management companies (CMCs) on a regular basis.

11. CFA members report poor conduct by CMCs as commonplace, apparently with the sole aim of maximising returns for CMCs. Examples of current poor conduct include:

12. Speculative claims – where customers have never had a loan with a company. These claims are often accompanied by a form of authority that refers to PPI rather than a loan, suggesting that CMCs are simply using their list of PPI customers to make other financial claims, regardless of whether the customers have ever had other products;

13. Exaggerated claims – lenders report claims being submitted where the number of loans a customer has had has been exaggerated. For example, a lender received a claim via a CMC that stated the customer had taken out 27 loans with the lender. Investigations showed the customer had only ever taken out 3 loans with the lender. The same lender received another claim via the same CMC on behalf of a different customer. This claim said the customer had taken out 3 loans with the lender. The lender had no record of the customer taking out any loans;

14. Template claims – claims using standardised template letters are common. These templates provide little or no detail about what the complaint is, are often not applicable to the customer or express general dissatisfaction rather than specific concerns;

15. Inaccuracies – this can include very basic inaccuracies such as the incorrect gender or name for a customer;

16. Questionable customer authority – CMCs require authority from a customer to submit claims on their behalf. Lenders have received forms of authority where the date has been amended, with no signature or where the signature does not match the customer’s name or the signature that the firm holds for that customer. Lenders have also seen forms of authority that refer to PPI rather than loans and some customers have complained to lenders that they did not ask the CMC to act on their behalf;

17. Template replies to communication from lenders ignoring the facts of a case, for example referring to multiple loans where they have been informed there was only a single loan funded.

18. Ignoring communication from lenders – where lenders request the information required to investigate a claim, it is common for the CMC to ignore the lender and escalate the claim to the Financial Ombudsman Service;

19. Threatening customers – CFA members have reported cases of customers using CMCs being threatened by CMCs if they talk to the lender directly. There have been worrying cases of CMCs threatening customers with legal action when the customer is vulnerable.

Strengthening the regulation of CMCs

20. The CFA supports strengthening the regulation of CMCs as the best way of tackling these, and other, issues in the market.

21. FCA regulation of CMCs should have a significant impact on the CMC market and make it work better for consumers.

22. A robust authorisation process for CMCs will ensure that CMCs are run by individuals who are fit and proper. The authorisation process should also act a barrier to those firms that want to enter the market to make money quickly rather than provide a service to consumers.

Transition to FCA regulation

23. The FCA needs to take on the regulation of CMCs as soon as practicable.

24. Any delay risks unscrupulous CMCs trying to take advantage of consumers. CFA members have reported a number of new CMCs entering the market recently, with these CMCs paying scant regard to the current conduct rules. Some of these CMCs have even claimed to CFA members that they are not subject to the current conduct rules.

25. As more detail of the FCA regulatory regime for CMCs emerges, there is a risk that some CMCs could increase efforts to maximise their income prior to the introduction of the new regime. This could increase consumer detriment and would also have implications – particularly in terms of resources – for the firms which receive the claims.

Interim charge cap on PPI claims

26. Extending the proposed interim charge cap on PPI claims (clauses 27 and 28) is also vital in helping to ensure a smooth transition and adequate consumer protection during the transition.

27. With the market for payment protection insurance (PPI) claims becoming exhausted, particularly with the end date in sight, CMCs are continually casting around for the next opportunity to sustain their business. Historic critical press reports about short-term lending, announcements by the FCA about short-term lenders making compensation payments to rectify past issues and rising numbers of complaints presented a potential opportunity to exploit the short-term lending market. This will only be exacerbated by an interim charge cap that applies to PPI claims only.

28. The CFA believes that the interim charge cap should apply to all financial claims. Limiting an interim cap to PPI claims only will simply encourage CMCs to focus their attentions on other types of claim where there is the potential to levy higher charges and maximise profits.

29. A single interim cap on charges for all financial claims, at a level that is lower than current charges, is needed to help tackle widespread poor conduct by CMCs.

January 2018

 

Prepared 1st February 2018