Claims management firms prepare to meet new FCA standards
People using claims management companies can expect to get a clearer idea of what they are getting and how much it will cost when the City regulator starts overseeing firms from Monday.
From April 1, claims management companies (CMCs) set up or serving customers across Britain will be overseen by the Financial Conduct Authority (FCA), which wants to ensure firms are clear and upfront about fees and are keeping transparent records of dealings with customers.
The new regime is expected to drive up standards and help consumers make more informed decisions. It could also encourage trust in firms that meet the rules.
Customers who are unhappy with a company will be able to take their complaint to the Financial Ombudsman Service (FOS).
Welcoming the move, James Dalton, director, general insurance policy, Association of British Insurers (ABI), said people have been pestered in the past by unwanted calls, texts and emails from firms which often try to encourage bogus compensation claims, at the expense of honest customers.
He said: “This tougher regulation should weed out the rogue firms, and provide anyone thinking of using a firm with important information, including fees they may have to pay, and other free alternatives available to pursue a genuine claim.”
Jonathan Davidson, director of supervision – retail and authorisations at the FCA, previously told the Press Association: “Consumers will be able to have a clear understanding of what they’re getting and how much it will cost them, and hopefully, if there are any other alternatives, they have a basis to make a choice which is informed.”
Many people have turned to CMCs to help with claims such as payment protection insurance (PPI) in recent years.
The deadline for making PPI complaints is August 29.
CMCs take a chunk of PPI payouts, but there is plenty of help free available for people to make a claim – for example, on the websites of the FCA, the FOS, Citizens Advice and MoneySavingExpert.com.
However, a previous “financial lives” survey from the FCA found that 67% of customers who used a CMC over the past three years to make a financial services claim would not have done so without the involvement of a CMC.
The FCA will be regulating financial services CMCs as well as those involved in other activities, such as firms helping people with personal injury claims like whiplash after a car accident.
While the sector been tarnished in the past by concerns over some firms pestering people with cold calls and bringing spurious claims, efforts have been made in recent years to clamp down on nuisance calls and exaggerated claims.
Mr Davidson previously said CMCs generally provide a “valuable service”.
He said CMCs have “done a good job, on the whole” in helping customers check PPI and making claims.
The FCA aims to put more power in the hands of consumers, before, during and after they have used a CMC.
Firms that want to continue operating in the sector will need to apply for full authorisation with the FCA, which means meeting its standards.
Under the FCA’s plans, people heading these companies will also need to meet the appropriate standards – senior managers will need to show they are fit and proper and acting with integrity.
Companies will also need to demonstrate they are making sure complaints have a good, arguable basis and are not frivolous.
Firms describing themselves as “no win, no fee” will be expected to spell out the cost of the service.
If there is a free available alternative this will also need to be made clear.
Firms will also be required to record calls with customers so they can be looked into if necessary.
In the midst of the PPI scandal fallout in 2011, more than 3,000 CMCs were operating, but around 700 to 750 CMCs are expected to come under the FCA’s supervision in April.
Mr Davidson has said the FCA’s regulation is about “making sure that overall trust in the industry increases and everyone reaches a good minimum standard of behaviour”.