Claims Management Companies and Financial Services Complaints

Claims Management Companies

and Financial Services Complaints

February 2014

A note from the Claims Management Regulator (Ministry of Justice), the

Financial Conduct Authority, the Financial Ombudsman Service and the

Financial Services Compensation Scheme.

A guide for consumers, ﬁnancial service providers and claims management

companies on how consumers’ complaints should be handled where they

choose to use a claims management company.

Claims Management Companies and Financial Services Complaints

February 2014 2

This note will assist consumers, ﬁnancial service

providers and claims management companies

(CMCs) to:

• understand the role of CMCs in complaints

against ﬁnancial services or products,

including payment protection insurance

(PPI) complaints;

• provide information on related topics

of concern and answer frequently asked

questions;

• understand what behaviour is expected

from nancial rms and CMCs through the

complaints handling process;

• explain the roles of the Claims Management

Regulator (CMR), the Financial Conduct

Authority (FCA), the Financial Ombudsman

Service (ombudsman service) and the

Financial Services Compensation Scheme

(FSCS).

Claims Management Companies

A CMC is a business that handles certain types of

complaints (i.e. in personal injury claims or mis-sold

ﬁnancial products and services such as payment protection

insurance and investments).

CMCs charge consumers a fee for doing this – sometimes

only if they “win” the case and get compensation for the

consumer. In some cases fees can be signiﬁcant – one

quarter of the total compensation awarded or more.

These are fees that the consumer has to pay from the

compensation awarded.

PPI (payment protection insurance)

Since 2011 the number of complaints about mis- sold

PPI has grown sharply. A signiﬁcant proportion of

these complaints have been made via CMCs, who have

advertised widely about the issue.

In some cases there has been criticism that some CMCs

are not submitting complaints in an appropriate manner

and are clogging up the system for banks trying to

resolve their consumers’ complaints. This continues to

be robustly investigated and addressed by the Claims

Management Regulator by the introduction of new rules

setting the required standards of handling ﬁnancial services

complaints.

Financial services complaints

Complaints about most kinds of ﬁnancial products are

covered by FCA rules. Financial ﬁrms are obliged by these

rules to handle the complaints fairly, consistently and

promptly.

The Financial Ombudsman Service

The ombudsman service was set up by Parliament to sort

out individual complaints that consumers and ﬁnancial

service providers aren’t able to resolve themselves. It is an

independent service for settling complaints which is free

to consumers. The ﬁnancial service provider must be given

the chance to look into a problem ﬁrst – and they have

eight weeks to do it. If the ﬁnancial service provider does

not respond within eight weeks, or does not respond to

the consumer’s satisfaction, the consumer can go to the

ombudsman service.

The Financial Services Compensation Scheme

If a ﬁnancial ﬁrm against which a complaint is made has

gone bust a complaint may be made to the Financial

Services Compensation Scheme (FSCS). FSCS does not

charge individual consumers for using its service. There

are limits to the cover the FSCS can provide, whether a

complaint is brought by an individual or through a CMC.

Claims Management Companies and Financial Services Complaints

February 2014 3

Information for Consumers

Information for those using, or considering

using, the services of a CMC

1. Should I use a claims management company (CMC)?

• There is no need to use a CMC to reclaim mis-sold

PPI. It is straightforward to complain to ﬁnancial ﬁrms

directly, and if necessary to the ombudsman service

or FSCS, without using a CMC. Complaining yourself is

free, and you will keep any compensation you receive

without any fees being deducted.

• If you want independent advice on your options you

can contact your local Citizens Advice or trading

standards team, or visit www.moneyadviceservice.org.

uk for impartial information on money matters.

• As with most businesses, the quality of service offered

by CMCs can vary signiﬁcantly so if you are considering

using a CMC, it is advisable to shop around and think

carefully before agreeing to any ﬁnancial contract.

Make sure you understand the fees the CMC will

charge.

2. Are CMCs regulated?

Yes. Any business that offers claims management services

in England and Wales must be authorised by the Ministry

of Justice’s Claims Management Regulator under the

Compensation Act 2006, unless they are covered by an

exemption (such as charities and advice agencies such as

Citizens Advice, and solicitors who are regulated by the

Solicitors Regulation Authority). CMCs should refer to the

regulator in their paperwork as the Claims Management

Regulator, so they do not suggest that they are endorsed

or recommended. The Ministry of Justice does not endorse

or recommend any CMC.

Authorised CMCs that offer to help consumers make a

complaint must follow strict conduct rules. For example,

they must:

> not engage in unsolicited electronic marketing, face-

to-face ‘cold calling’ or in any form of high-pressure

selling;

> where they give advice, the CMC must tell you about

ombudsman schemes or other ofﬁcial means of

obtaining compensation;

> give written information on how to pursue a

complaint and the costs involved before a contract is

agreed;

> allow a ‘cooling off’ period of at least 14 days;

> operate a consumer complaints scheme.

> agree a contract in writing, before they take any fees;

> inform you if they are suspended or restrictions placed

on it within 14 days of the enforcement action being

taken; and

> not offer or market any inducement to persuade

clients to bring a complaint.

3. Will my complaint be decided any differently if I use

a CMC?

Your complaint won’t be decided any differently by

either the ombudsman service or FSCS if it reaches

them. Under FCA rules ﬁnancial ﬁrms should investigate

your complaint fully, whether or not a CMC is involved.

The CMC cannot increase your compensation or speed

up how quickly your complaint will be looked at by the

ombudsman service or FSCS.

4. When do I pay a CMC for their service and how much

will it cost?

In most cases, a CMC will charge a fee which will reduce

the amount of compensation you receive. The CMC should

tell you about its fees or any costs, the percentage charge

and how this relates to the actual compensation you will

receive, in the written information they must provide

before you enter into a contract.

Where the charge is a percentage of compensation, this

must include an example, like the one given below.

If a CMC charged 30% (including VAT), and you were

awarded a claim of £1000, you would pay £300 in fees to

the CMC – leaving you with £700.

You should not pay any money, provide credit card details

or agree a verbal contract until you have seen the written

information, have had a reasonable time to consider and

signed a contract.

A CMC must allow you to withdraw from a contract at

any time; however the CMC may charge reasonable costs

for work already undertaken. Any charge made should be

limited to what is reasonable in the circumstances and

should reﬂect work actually undertaken by the CMC.

i. Advanced fees

Some CMCs will ask you to pay an advance fee –

which may not be repayable if your complaint was

not successful. Make sure you check the terms and

conditions of the contract carefully as paying for any

service in advance carries risks. Consumers should ‘shop

around’ for their best option.

It is important that you fully understand the

implications of paying an advance fee and that you do

not pay this until you have seen and signed a contract.

Most CMCs that charge an advance fee (after you have

Claims Management Companies and Financial Services Complaints

February 2014 4

signed a contract but before your complaint is decided)

will still require a percentage of any compensation you

receive at the end of the complaint.

ii. Fees above compensation

You should understand that if you complain successfully

but are awarded compensation in the form of a

reduction on the amounts that you owe (loan arrears,

for example) you may still need to pay the CMC a

fee. This would mean that you end up with no cash

compensation, only a reduction of your debt, but you

would still have to ﬁnd the cash to pay the fee to the

CMC. In some cases a CMCs fee could even be higher

than the compensation received.

5. What can I do if I believe my CMC has acted unfairly?

The regulator requires all CMCs to have a complaints

handling procedure, and you should complain to them

directly in the ﬁrst instance to give them a chance to

put things right. You can obtain a copy of your CMC’s

complaints handling procedure from the business or their

website.

If you need help making a complaint, you will ﬁnd

advice on writing a letter of complaint on the Trading

Standards website (www.tradingstandards.gov.uk/advice/

ifyouareindispute-sum2.cfm), or you can contact Citizens

Advice Consumer Service on 08454 04 05 06.

6. Will consumers be contacted even if they have

appointed a CMC?

Possibly. A ﬁnancial ﬁrm may still need to contact the

consumer directly, for example to make further reasonable

requests concerning evidence or details about the

complaint.

The Financial Ombudsman Service and the Financial

Services Compensation Scheme will usually contact a

CMC ﬁrst, but there may be occasions when they need to

contact a consumer directly.

If you use the services of a CMC it does not necessarily

mean you will not have to engage in the process. Your

instructed CMC may give you updates or ask for more

information.

General information for consumers

If you are considering using a CMC to complain about mis-

sold PPI you should:

• Not be pressured into making any on-the spot

decisions.

• Consider carefully if you are prepared to give up part of

your potential compensation to have their help, when

you could easily complain directly yourself.

• Make sure you understand the fees the CMC will

charge – they should send you full written information

about the service they are offering and what it will

cost, and they should sign a contract with you before

taking any money

• Check the CMC is authorised; for this and further

information about the regulation of CMCs visit www.

justice.gov.uk/about/cmr.htm

• Always think carefully before handing over money in

advance or giving your credit or debit card details out

to anyone.

• Ensure that the contract you sign with the CMC lets

you withdraw at any time. Any charge made to you

after you have withdrawn should be limited to what

is reasonable in the circumstances and should reﬂect

work undertaken by the CMC.

• Seek independent advice about making your

complaint:

• Visit the Financial Ombudsman Service website at: how

to complain - the ﬁrst steps for information about how

to make a complaint yourself or phone them for free

on 0300 123 9 123 8am to 8pm, Monday to Friday or

9am-1pm on Saturdays. This number is free to call from

landlines and they are happy to phone you back

• Visit the Financial Services Compensation Scheme

website at: www.fscs.org.uk for information about how

to complain yourself against a ﬁnancial ﬁrm that has

gone bust or phone them on 0800 678 1100 or 020

7741 4100 Monday to Friday, 8.30am to 17.30pm.

This number is free to call from landlines and they are

happy to phone you back.

• Contact your local Citizens Advice or Trading Standards

for advice on the best way to deal with ﬁnancial

problems and complaints or

• Visit: www.moneyadviceservice.org.uk for impartial

information and guidance about your money to help

you work out what’s right for you

Further information is available at:

Claims Management Regulation - Information for

consumers

Claims Management Companies and Financial Services Complaints

February 2014 5

Information for Financial

Services Providers

Information for ﬁnancial services providers

receiving complaints from CMCs

1. Should I deal with complaints from CMCs

differently?

FCA rules require that ﬁnancial service providers must

operate effective procedures for the prompt and fair

handling of expressions of dissatisfaction from, or on

behalf of, a consumer about a ﬁrm’s provision of, or failure

to provide, a ﬁnancial service.

FCA rules also provide that a complaint may be brought

by a third party on a consumer’s behalf. Your investigation

of the complaint, and the outcome of the complaint for

the consumer, should be exactly the same regardless of

whether the consumer uses a third party representative or

not.

A complaint may be generated because a CMC has brought

a particular issue to a consumer’s attention. This does

not mean that the complaint is any less valid than any

complaint that has been brought directly by a consumer.

You must assess each complaint on its merits, regardless

of the process by which it was initiated. If a CMC-backed

complaint is subsequently referred to the Financial

Ombudsman Service it will be assessed in the same way it

would if the consumer had brought the complaint directly.

2. Some CMCs just send me a list of consumers and ask

if we have ever dealt with them – is that a complaint?

No. The FCA rules about complaints only apply when

there is an expression of dissatisfaction about a product

or service that you have provided (or failed to provide).

Simply asking whether or not a service has been provided

is not a complaint.

Where you receive a request for information about a

consumer, the Data Protection Act 1998 may also apply.

The CMC may request a Subject Access Request (SAR). This

is a request for all relevant information you may hold on

the consumer. Again, this is not a complaint either.

3. What is being done to stop CMCs bringing frivolous

complaints?

The ombudsman service has the power to dismiss

complaints which are considered to be ‘frivolous or

vexatious’, but in practice they ﬁnd such cases to be

relatively rare.

The Claims Management Regulator is strengthening

its regulation to tackle poor behaviour among CMCs

by tightening the rules of conduct that CMCs abide by,

shutting down non-compliant ﬁrms and by seeking to

introduce a power to ﬁne. You can provide information to

the Claims Management Regulator to help it identify and

remedy poor practice.

The ombudsman service and the FSCS monitor

submissions from CMCs and if either has concerns about

how CMCs are handling cases they also refer these onto

the Claims Management Regulator.

4. Why can’t a CMC be charged if they take a complaint

to the ombudsman and subsequently lose?

Consumers can refer disputes to the ombudsman

service free of charge if they are unhappy with the way

a ﬁnancial service provider has dealt with a complaint.

A ﬁnancial service provider cannot claim back the costs

of dealing with the complaint from the consumer. This

applies whether or not the consumer has appointed a

representative.

FSCS deals with complaints if an authorised ﬁnancial ﬁrm

is no longer trading. Consumers with a complaint against

these ﬁrms can apply for compensation from the FSCS

free of charge. FSCS also provides assistance to claimants

entirely free of charge.

5. CMCs keep sending me standard template letters –

do I have to treat them as proper complaints?

Ideally, consumers – and especially CMCs acting on

their behalf – should identify the relevant points of

their complaint as clearly as possible when they make a

complaint. But the FCA’s rules require ﬁnancial service

providers to consider complaints fairly, consistently and

promptly – regardless of how they are made. Even if

you receive a standardised complaint, it does not alter

the fact that the consumer has expressed some form of

dissatisfaction about the product or service provided.

What matters is the relevant information provided which

allows you to judge whether the complaint is valid. You can

approach the CMC and/or consumer to make reasonable

further information requests of them. If a consumer, or a

CMC, is only asking whether PPI was sold, this should be

treated as a request for information and need not start the

complaints process.

6. We feel we are being unfairly targeted by a CMC,

what can we do about it?

If you believe that a CMC is not acting in accordance

with the Conduct Rules with which they must comply

as a condition of their authorisation, you can inform

the Claims Management Regulator. This will help the

Claims Management Regulator to prioritise and target

enforcement work to tackle breaches of its Conduct Rules,

in particular where the services provided by a CMC do

not meet the needs of the consumer, causing consumer

detriment.

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February 2014 6

Information for Claims

Management Companies

Information for businesses making complaints

on behalf of consumers

1. What do I need from the consumer?

Obtain as much relevant documentation/information as

possible and supply this to the ﬁrm you are complaining

to. In PPI cases carefully check documents such as credit

card statements or loan agreements to establish if PPI

was sold. You are expected to substantiate both evidence

of a contract and evidence supporting the validity of the

complaint.

2. What do I need to submit to the ﬁnancial services

provider?

The ﬁnancial service provider will need enough information

to conduct a comprehensive search of its systems. You

should include the name and address of the consumer, any

previous names and addresses, account or policy details

and any thing else you feel may help identify ﬁnancial

products, and you should comply with any reasonable

requests for additional information.

3. What do I need to submit to the Financial

Ombudsman Service?

Without key information about a complaint, the

ombudsman service cannot look into it. The ombudsman

service expects CMCs to provide at least the following key

documents whenever you refer a consumer’s complaint:

• a fully-completed complaint form;

• a fully-completed PPI consumer questionnaire;

Both of the above two documents must be signed by your

client. If more than one person is bringing the complaint,

they must all sign. If an insolvency practitioner is

involved, you should also get their consent to bring the

complaint, and their signature.

• copies of all correspondence about the complaint

between you (or your client) and the ﬁnancial services

provider. As an absolute minimum, we need a copy

of the original complaint and the ﬁnancial service

provider’s ﬁnal response letter;

• copies of signicant documents that are relevant to the

arguments you are presenting – such as your client’s

credit agreement or application form; and

• supporting evidence, where appropriate, about a

consumer’s circumstances at the time of sale – for

example, their employment status – especially if the

ﬁnancial service provider has conﬂicting evidence.

4. What do I need to submit to the Financial Services

Compensation Scheme?

Provide a fully completed application form provided

for the speciﬁc complaint by FSCS together with copies

of all documentation relating to the complaint, the

consumer’s contact information, a signed copy of the

contract the consumer signed with you and copies of all

correspondence you have had with the consumer. If you

are able, also provide a summary of the consumer’s own

account of the disputed sale and if a loan was involved, the

reasons it was needed.

5. Is there anything I should avoid?

Standardised text does little to assist either the ﬁnancial

service provider or the ombudsman service or FSCS. The

complaint must be individual and as speciﬁc as possible.

Also avoid referring complaints to the ombudsman service

before you have had an initial response from the ﬁnancial

services ﬁrm. According to FCA rules, a ﬁnancial service

provider has eight weeks to respond to a complaint before

it can be referred to the ombudsman service. This is often

known as the “the eight week rule”. If there have been

delays, it may well be in your client’s best interests for you

to contact the ﬁnancial service provider again, allow it

longer to respond, or to take some other course of action.

If you refer a complaint too early, without evidence

that you have given a ﬁnancial service provider the

required eight weeks to respond, then it is likely that the

ombudsman service will return the complaint to you and

ask the ﬁnancial service provider to get in touch.

How should nancial rms

and CMCs interact?

Anecdotal evidence suggests that CMCs and ﬁrms do not

always work collaboratively in the best interests of their

customers. Below are some ways they should interact:

Interactions between CMCs and ﬁnancial

services ﬁrms

1. Letters of Authority

A CMC should ensure it has a valid letter explaining it is

authorised to represent a client and the exact nature of the

authority granted to it.

Financial services ﬁrms should act in accordance with

DISP 1.3.1R – ‘effective and transparent procedures for the

reasonable and prompt handling of complaints must be

established, implemented and maintained’. Again, ﬁrms

should note that this applies equally to complaints made

by consumers direct as to those made by a representative.

Claims Management Companies and Financial Services Complaints

February 2014 7

2. Obtaining information about the customer’s details

Many CMCs choose to undertake a Data Subject Access

Request from a ﬁrm to ascertain what products or services

their client received from a ﬁrm. Financial services ﬁrms

should ensure they comply with their obligations under the

Data Protection Act in a timely and reasonable manner,

but this need not start the complaints process.

3. Complaints submissions and complaint handling

CMCs should ensure that they provide as much

information as possible to the ﬁrm, about the underlying

product (s) or service(s) being complained about and also

the reason why their client believes the ﬁrm is at fault.

Doing so will enable a ﬁrm to assess and determine the

complaint as quickly and as effectively as possible.

In turn, ﬁrms must investigate the complaint competently,

diligently and impartially, obtaining additional information

as necessary and in accordance with DISP 1.4.1R.

The Roles of the Claims Management

Regulator (Ministry of Justice), Financial

Conduct Authority, Financial Ombudsman

Service and the Financial Services

Compensation Scheme

The Claims Management Regulator (CMR) is part of

the Ministry of Justice and is responsible for regulating

the activities of businesses providing claims management

services in England and Wales under the Compensation Act

2006. Authorised businesses that offer to help consumers

make a complaint for a mis-sold ﬁnancial product must

follow strict Conduct Rules.

Further information about the role of the Claims

Management Regulator is available at: www.justice.gov.uk/

about/cmr.htm

The Financial Conduct Authority is the regulator of most

ﬁnancial services in the UK. Its role includes setting and

overseeing the rules about how ﬁrms handle complaints. It

requires the ﬁnancial service providers it regulates to have

procedures for the prompt handling of complaints and to

assess complaints promptly and fairly, whether these are

brought on behalf of consumers by a third party such as a

claims management company, or directly by a consumer.

The FCA sets rules to ensure that ﬁnancial service providers

deal with complaints promptly and fairly. If the consumer

does not agree with the ﬁnancial service provider’s

response to their complaint they can ask the Financial

Ombudsman service to consider the case.

Further information about the role of the FCA is available

at: www.FCA.org.uk

The Financial Ombudsman Service is free for consumers

and is an impartial service established by government

to settle individual complaints between consumers

and businesses providing ﬁnancial services and is a

straightforward alternative to courts. Its decisions are

binding on ﬁnancial service providers up to £150,000.

Further information about the Financial Ombudsman

Service is available at: www.ﬁnancial-ombudsman.org.uk/.

If you have already complained about a ﬁnancial ﬁrm or

want advice about how to complain then the leaﬂet, ‘your

complaint and the ombudsman’, gives more details.

The Financial Services Compensation Scheme is the UK’s

statutory fund of last resort for customers of authorised

ﬁnancial services ﬁrms. This means that FSCS can pay

compensation to consumers if a ﬁnancial services ﬁrm

has gone bust (if it is unable, or likely to be unable, to

pay claims against it). FSCS is an independent statutory

body. It does not charge individual consumers for using its

service. There are limits to the cover FSCS can provide.

Further information on the protection FSCS provides is

available at: www.fscs.org.uk/