Out-Law News 2 min. read
16 Aug 2012, 9:47 am
In its latest newsletter (20-page / 1.4MB PDF), published as it received its 400,000th PPI complaint, the FOS said some financial businesses and CMCs were creating "unnecessary additional work". CMCs handle claims for compensation on behalf of consumers, but many have been criticised by consumer protection groups for poor practices and not being transparent with regards to fees.
The FOS, which deals with individual consumer complaints against financial institutions where the parties are unable to settle the issue themselves, is currently seeing up to 1,500 new cases involving mis-sold PPI every day - "double the forecast level", according to its newsletter. It has published a range of case studies reflecting its approach, indicating which cases it upheld and rejected.
Only 5-10% of all PPI cases ever make it to the FOS, but it has found in favour of the consumer in seven out of every ten cases it has dealt with. In reaching its conclusions the ombudsman considers whether the information provided by a business was clear, fair and not misleading and that products recommended to customers were suitable. If either of these conditions is not met, it will then decide whether the customer would have done anything differently.
Last week the FOS published a statement (6-page / 381KB PDF) indicating how increased demand for its services due to PPI mis-selling will affect how it funds its work in the future. However, it decided against charging CMCs to refer complaints, saying that such a requirement would not "address the underlying issues" in the sector and any charges would be likely to be passed on to customers.
"We understand why some believe that claims managers should contribute to the costs of the ombudsman service," it said in the statement. "However, we do not believe that this would be the right way forward ... Rather, we believe that these issues would best be addresses by better regulation of the claims management sector – and by better prevention of 'mass complaints' at source."
PPI is intended to cover repayments due on loans or credit cards for people who cannot afford their repayments because of an accident, sickness or death. However regulators have found that these products have been "widely mis-sold" to consumers in the past; in some cases because they were not told that a policy was optional or because they were not covered by the policy they took out. UK banks have had to pay £5.4 billion in refunds and compensation to affected customers since January 2011, according to the Financial Services Authority (FSA).
The FOS will charge an additional £350 per case to businesses which have more than 25 cases referred to it over the course of a year as of April 2013, it has said, a substantial increase on the current allowance of three free cases per business. The largest service users, comprising around 10 financial groups that account for 70% of its workload, will be charged under a new group account arrangement which will "develop over time to measure more accurately" the cost of the work to the service.
The service is funded by a general levy on the financial services sector set by the FSA as well as individual case fees. The FOS has stressed that it will need to consult further on the proposals, including what affect if any the changes will have on the general levy and the threshold for "large companies" to be included in the group account arrangements, before introducing the new structure. However, it intends to do so by April 2013.
The Government has announced that it intends to ban CMCs from offering incentives to individuals who sign up for their services as part of a drive to end "malpractice" in the industry. The Claims Management Regulation Unit, part of the Ministry of Justice, has removed the licences of over 700 CMCs since regulation began in 2007.