Financial Guidance and Claims Bill [HL]

Written evidence submitted by Lloyds Banking Group (FGCB12)

Introduction

1. Lloyds Banking Group welcomes the opportunity to submit written evidence to the P ublic B ill C ommittee on the Financial Guidance and Claims Bill.

2. We are the UK’s largest financial-services group, focused on retail and commercial customers and with a presence in nearly every community. Our purpose is helping Britain prosper, helping businesses and individuals while making a positive contribution to the communities in which we operate.

3. Our evidence is limited to the scope of the restriction on charges by claims-management companies (CMCs) and law firms for claims for payment-protection insurance (PPI) until regulation transfers to the Financial Conduct Authority (FCA), as introduced by part 2 of the Bill. We believe this protection should be extended to claims for packaged bank accounts (PBAs), where CMCs also charge excess fees while undertaking little work and adding little value for customers. We estimate this would see customers receiving some £25m more of their compensation over just 12 months. We nonetheless support the broader evidence being submitted on behalf of its members by UK Finance.

Interim restriction on charges for claims

4. In the 2015 Summer Budget, the Chancellor announced proposals were to be brought forward for the introduction of a cap on the fees that regulated CMCs could charge consumers in respect of financial products and services. The Ministry of Justice (MOJ) consulted on such maximum fee limits in February 2016, [1] proposing these be lower for bulk claims, such as for PPI and PBAs, [2] that, in the vast majority of cases, did not generally require a significant amount of work to be undertaken to pursue, particularly when compared with more complex claims matters in the financial-claims sector.

5. During its consideration of the Bill, the House of Lords agreed Government amendments to introduce an interim cap on the fees charged for claims-management services in respect of the selling of PPI. [3] This cap will apply from two months after the Bill is passed until the first relevant general rule made by the FCA comes into force under its duty to cap charges in relation to all regulated claims-management agreements and activities concerning financial products or services. [4]

6. Speaking for the Government, Baroness Buscombe justified acting in relation to PPI claims because the implementation of the FCA’s new regulatory regime and an effective, robust cap would necessarily take some time and this was a particular concern given that the FCA’s PPI claims deadline might have passed by the time the FCA’s fee cap was in place. [5] In parallel, in response to its consultation, [6] MOJ stated analysis of the evidence received suggested, while all types of financial-services claim could vary in terms of complexity, PPI claims were more likely to be straightforward, whereas PBA claims might be more complex as packaged accounts might have a range of benefits attached. In PBA claims, the suitability and eligibility requirements might vary between different benefits, requiring more thorough and detailed investigations to ascertain the basis for the complaint and consider whether the product was appropriate in the light of the consumer’s unique circumstances. Therefore, MOJ considered it more appropriate to group this product with all other financial claims and provide a separate standalone cap for PPI claims.

7. We agree eligibility and suitability requirements are different across PBAs and need to be considered in the light of each customer’s unique circumstances. This responsibility does not lie with CMCs as the FCA expects the firm dealing with a complaint to undertake a detailed analysis of a customer’s suitability and eligibility for a financial-services product.

8. Indeed, in our experience, PBA claims by CMCs are templated in nature and cite a wider range of generic allegations than is the case with complaints received directly from customers, who typically focus on issues relevant to their circumstances. For example, CMCs made 20% more allegations per complaint we concluded in October 2017 compared to customers who complained directly. Further, the same six allegations appeared in at least half of all CMC claims, and when we speak to customers, they often tell us they were unaware of all the CMC-initiated allegations and regularly withdraw some of them. And the outcome of a complaint is broadly the same regardless of whether it is submitted directly by the customer or a CMC.

9. Because CMCs use generic, templated letters, our detailed analysis frequently disagrees with their allegations and the outcome of complaints brought directly by customers is so similar, we reject MOJ’s conclusion CMCs undertake significant work and add significant value in submitting PBA claims on behalf of customers. On the basis of this evidence, we remain firmly of the view CMCs’ approach to PBA claims differs little, if at all, from their approach to PPI claims.

10. Moreover, this is not just a theoretical concern as it is the customer who pays-unfairly-with average CMC charges of 28% (excluding VAT) of the final redress paid according to MOJ’s consultation response. We estimate extending the interim PPI fee cap of 20% (excluding VAT) to include PBA claims will reduce these excess fees by some £25m over just the anticipated 12-month period before the FCA’s rules come into force.

11. Given the evidence CMCs undertake little work, make unsubstantiated allegations and charge excess fees, we believe the interim fee cap for PPI claims introduced by clauses 26-28 of the Bill should be extended to include PBA claims.

30 January 2018


[1] Claims Management Regulation-Consultation: Cutting the costs for consumers-Financial Claims, https://consult.justice.gov.uk/digital-communications/cutting-costs-for-consumers-finanical-claims/supporting_documents/Consultation%20%20CMR%20%20Cutting%20the%20costs%20for%20consumers%20%20Financial%20Claims%20%2015%20Feb%202016.pdf.

[2] As defined by the then-Financial Services Authority, a PBA is an arrangement under which a firm provides a retail banking service as part of a package that includes access to other goods or services, whether or not a fee is charged-see the Packaged Bank Accounts Instrument 2012 (FSA 2012/37), https://www.handbook.fca.org.uk/instrument/2012/2012_37.pdf. The Financial Ombudsman Service observes such extra features range from mobile-phone and travel insurance to better rates on overdrafts and loans-see www.financial-ombudsman.org.uk/publications/technical_notes/packaged-bank-accounts.html.

[3] Clauses 26 to 28 of the Bill as introduced into the House of Commons, https://publications.parliament.uk/pa/bills/cbill/2017-2019/0131/cbill_2017-20190131_en_1.htm.

[4] Clause 25.

[5] Hansard, 21 November 2017, Volume 787, https://hansard.parliament.uk/lords/2017-11-21/debates/B77AED8E-5498-4851-AD4B-8DB62369C88C/FinancialGuidanceAndClaimsBill(HL).

[6] Claims Management Regulation-Consultation Response: Cutting the costs for consumers-Financial Claims, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/660291/moj-claims-management-regulation-consultation-response.pdf.

 

Prepared 1st February 2018