Recent changes within the CMC sector goes some way to achieving better consumer outcomes

There will be no surprise that at our recent Conference in Manchester, one of the recurring discussions points was the spike in affordability complaints over the last two years.

With recognition that legitimate and valid customer claims need to be managed, there was regular reference to the involvement of claims management companies.

However, we have seen some behaviours that suggest that customers are being used as bargaining chips. Their expectations are often raised and then dashed. They are clearly not being treated as individuals.

For CFA members there has long been concern about the challenges when presented with high volume, low quality affordability claims submitted by claims management companies, which frequently turn out to be unfounded.

Lenders made clear; they are happy to deal with genuine claims from genuine customers, when improvements to the customer experience would be felt. However, the accuracy of claims being submitted must be improved.

The concern has always been that the closing of PPI claims signals an end to the ‘profitable cash cow’ [1] that has been the mainstay of many claims’ management companies so far. The PPI deadline of 29th August 2019 now seems a distant memory and due to the final last-minute surge by consumers to claim a PPI refund, the FOS say they expect to be working on the cases until April next year.

As a result, many CMCs have closed their doors to new customers – only 350 financial services CMCs have applied for authorisation with the FCA, compared with the 1,238 CMCs authorised by the Claims Management Regulator in 2018.

But as one door closes another must open and, in addition to payday loans, it is reported that CMCs are now looking at other forms of income generation, including claims for housing disrepairs, mis-sold mortgages, packaged bank accounts and tenants in HMOs where landlords had not yet secured a licence for the property.

We believe that there has been progress since the FCA took over regulation of the CMC sector. The team at the FCA updated the CFA members at our Summer Summit, and it was great to hear from those that are working through these applications.

Another interesting point is that these claims are not subject to a 20% cap on fees. However, the regulator is reported to be considering extending the PPI fee cap, perhaps spurred on by the fact that some firms charge up to 45% for payday loan claims.

Perhaps then it is hardly surprising that the sector has already seen some market contraction.

Casualties have included Arch Hall Ltd whose Administrator’s proposal statement noted ‘the change in Regulator comes with a strict set of requirements that the Director did not feel could be met’[2]or the lapsed licenses of several firms including Direct Financial Claims Ltd and Smart Claim Ltd.

While a few have voluntary undertakings, such as Allay Claims Ltd who have requirements regarding financial promotions.

A filtering of the CMC industry is to be welcomed by the regulator, consumers and the sector itself alike.  While the PPI mis-selling scandal has produced welcome windfalls for the millions of consumers who have submitted claims, the financial services and consumer credit sectors have expressed concern about the tactics used by some CMCs to submit an inordinate amount of ‘low-quality’ claims within a very small time frame.

Earlier this year, The Guardian reported on the experiences of CFA member, Elevate Credit who received 2,500 complaints in the second half of 2018 from people who were not Elevate customers.

However, figures recorded by FOS for Q1 2019 showed complaints from CMCs had fallen from 8 in 10 to 6 in 10, whilst overall volumes have also dropped, which suggests the ‘cowboys’ are finally being weeded out.

The FCA are expected to have completed the authorization process by July 2020, meaning all remaining compliant CMCs can continue to provide a service to consumers, while allowing lenders and the FOS to investigate genuine concerns.

Subsequently, this will create a better outcome for customers as it will allow CFA members and the industry alike, to ensure their resources are focused on providing the best possible experience for their customers.