Celame (UK) Limited operates the LegalBeagles consumer law & help forum and the LBcompare comparison website and we welcome the opportunity to contribute to this consultation.
In broad terms we support the proposals in the consultation paper, subject to the consideration of unintended consequences. But, as we repeatedly stated, these measures will have come far too late to benefit most consumers who would have employed the services of a PPI CMC and illustrate once again how far behind the curve claims management regulation operates.
It is disappointing that the proposal to impose a cap on the level of fees was announced only after the FCA proposed a deadline for PPI complaints which is widely expected to be 2018. In short the Government has waited until the landlord has called last orders before considering how much consumers are paying for their beer. The ‘stable doors’ point was raised by the Public Accounts Committee on 2nd March and to which John Kingman, Second Permanent Secretary for Financial Services at HM Treasury, had no answer.
Historically claims management regulation has been reactionary rather the pro-active, to the detriment of consumers and this consultation illustrates that nothing has changed. The MOJ press release of 2 October 2015 announcing the proposed consultation bears the reassuring heading ”Clampdown on rogue claims management companies”, but it is less reassuring given the number of occasions MOJ have made this kind of announcement :
• 22 August 2012 – ”Claims management clampdown”
• 28 August 2012 ” Consumers set to benefit from claims management crackdown”
• 31 December 2012 – ”Claims management crackdown”
• 8 February 2013 – ”Extra measures to tackle PPI claims pests”
• 8 April 2013 – ”Tougher rules for claims management companies”
• 8 July 2013 – ”New rules to protect customers from rogue claims firms”
• 21 November – ”Rogue PPI claims companies targeted by fines and toughened regulations”
• 21 February 2014 ”Clampdown on rogue claims firms”
• 2 October 2015 ”Clampdown on rogue claims management companies”
Turning to the individual proposals themselves our position is summarised as followed:
Cap the maximum completion fee to 15% (Inc. VAT) for bulk claims (such as mis-sold payment protection insurance claims) with a single lender and cap the overall charge for claims worth more than £2,000 in total to £300.
In principle we support the percentage completion fee cap. Please see our response to Question 1 below.
Introduce a maximum ‘cancellation’ fee of £300 for bulk claims when a consumer cancels their contract with a claims management company after the initial 14 day ‘cooling off’ period.
We believe the cancellation cap figure of £300 is too high given that it is the same maximum amount a consumer would pay for a successful claim.
Ban CMCs from receiving or making any financial payment for referring or introducing a consumer to a third party in relation to a PPI or PBA claim.
We welcome this initiative as data farming and trading has had a significantly negative effect on consumers and the conduct of firms. We would also like to see a ban on CMCs being able to assign existing contracts to other CMCs without input from the Consumer.
We also believe the Authorisation process needs change. Authorisation is presently attached to a firm rather than a key person within the firm. This has enabled companies and individuals to purchase ‘ready made’ CMC’s with their authorisation in place.
Ban any fees where no relationship is found between a consumer and a lender.
Again we welcome this. Too often consumers sign contracts which allow the CMC to charge large cancellation fees for work the scope of which isn’t particularised in the contract. Consumers are often charged for what are effectively CMC fishing expeditions.
Ban all upfront fees for all financial claims, where CMCs ask to be paid before any work is carried out.
The banning of upfront fees prior to CMC contracts being signed was the most effective rule change the MOJ made in our view and as a result there are very few CMCs who charge up-front fees now in any event. However we would support a total ban on up-front fees as CMCs will be tempted to re-introduce them if & when the fee caps come into force.
1. PPI / PBA Claims Only
In principle we support the 15% completion fee cap.
In researching CMC charges for PPI & PBA reclaiming services for the LBcompare comparison website we were struck by the number of CMCs who made no mention of the level of their fees on their websites save for the terms & conditions often buried in an obscure location, if at all, despite the requirement in the Conduct of Authorised Persons Rules that the standard terms & conditions be ‘published prominently on the business’s website’.
By way of example the ‘Elkador Finance’ website does not publish its terms & conditions or indeed its fees despite having been under investigation since March 2015.
This suggests a lack of price competition and although a cap wouldn’t promote competition on price it would at least deal with the negative effects of it. We believe a cap of 20% including VAT will allow for more competition within the market and allow the CMC firms to offer a good service at a reasonable price. Restricting pricing to 15% gives very little room for competition considering that the lowest charging firms currently charge 10%.
The relatively recent change to the Conduct of Authorised Persons Rules (CoAPR) whereby CMCs are required to express fees by way of examples of the ‘actual costs in pounds’ fails to specify whether VAT should be included and has led to omissions in CMCs’ examples and confusion as to how much the consumer will actually pay. This is why LBcompare’s own cost examples of the total cost per £1000 in compensation awarded includes VAT where applicable and we are pleased that the proposed cap has adopted a similar approach in including the VAT element to reflect the true cost.
The cap on success fees charged for claim values above £2000 is welcome as clearly the same amount of work is required for claims well above that figure but it could have unintended consequences, not least as the cap may lead to some lenders to offer lower compensation amounts than they otherwise would in the knowledge that there is no incentive for CMCs to argue for the correct amount above the cap.
With this in mind, we would suggest that a further fee of 5% is available for firms to charge on any sums reclaimed in excess of the £2000 limit.
Reclaimed Sum of £3000
Fee of 20% on £2000
Fee of 5% on £1000
Total Fee Due ( inclusive of VAT) = £450
When carrying out our research for LBcompare, we found a wide variation in the range of fees and charges of CMCs. These ranged between 10% (with no VAT) and 36% (plus VAT). Based on the suggested £2000 claim value this would cost the consumer between £200 and £864. Of the 76 CMCs featured on LBcompare, 8 currently charge the equivalent of the proposed 15% (Inc. VAT) with no cap on the total net value of final compensation.
This does however indicate that at least some CMCs can operate a successful business model at this level. We believe that a blanket cancellation cap figure of £300 is too high given that it is the same maximum amount a consumer would pay for a successful claim, or in fact more if the cancellation fee cap does not include VAT when the success fee capped figure does. The proposal should have been clearer on whether the cancellation fee cap figure includes VAT.
Notwithstanding, on the one hand a lower single cap could encourage customers to cancel just before a compensation award is offered to avoid paying the full £300 capped success fee and on the other CMCs could be tempted to routinely charge the maximum capped cancellation fee regardless of how much work they have completed and at what stage the complaint is at. There is ambiguity in many CMC terms & conditions in relation to cancellation fees outside the 14 day cooling off period as to what constitutes a ‘reasonable’ charge for work completed.
complicating factor in setting a cap is that some CMCs’ services include a tracing service to establish what accounts a customer has held to which PPI may have been attached, whereas others start at the point where a potential PPI claim has been identified. We would suggest 3 cancellation cap figures triggered at various stages in the claims management process: £50 at the point that the CMC establishes that the customer has PPI/PBA on any accounts, £100 at the point a complaint is filed with a firm, £200 if the complaint has been legitimately filed with the Financial Ombudsman, and £300 at the point a complaint is upheld.
We support a proposed ban on any charges being imposed on consumers where there is no relationship or relevant policy between the consumer and a lender. In short in circumstances where there can be no claims management services provided there can be no charge.
We would wholeheartedly support a ban on receiving or making payment for referring or introducing a consumer to a third party. In practice most referrals and introductions in the industry are made without the informed consent or even knowledge of the consumer.
2. PPI / PBA Claims – Alternative Considerations
We believe that a success fee cap of 10% including VAT is too low. Although as a pro-consumer group LegalBeagles have consistently campaigned for more effective regulation of CMCs and a better deal for consumers, too low a cap would have an overall negative effect of reducing the PPI/PBA CMC market to such an extent that it would significantly impact on choice and quality of service for the consumer.
Although the cancellation fee caps are more in line with what we’d like to see we would prefer a tiered cap approach as described in our response to Q1.
3. Other Financial Claims (excluding PPI/PBA claims)
We believe that there would be difficulties in imposing a blanket cap on the rest of the financial claims market. Financial claims other than PPI and PBA vary widely in complexity. Additionally for as yet unknown financial products and services launched in the future it may mean that a pre-set cap could be set at an inappropriately high or low level.
4. All Financial Claims
Historically, upfront fees have been a major concern to us. These fees often compounded the problems of financially vulnerable consumers and left many in a worse position than had they not engaged with the CMC.
There some notorious cases where CMCs such as Client Connection Ltd and Cartel Client Review Ltd procured upfront fees on a large scale before going into administration and selling on the customer contracts to other CMCs.
The banning of upfront fees prior to CMC contracts being signed was the most effective rule change the MOJ have made to date in our view and as a result there are very few CMCs who charge up-front fees now in any event. We would support a total ban on up-front fees as some CMCs may be tempted to re-introduce them if & when the fee caps come into force.
5. General Analysis and Rationale
In general we believe that the analysis and rationale underpinning the proposals is sound and the appropriate information has been accounted for.
However the issue identified at paragraph 2.17 of the consultation documents of CMCs charging further payments from a consumer’s compensation in instances where a previous claim was upheld but where, subsequently and for various reasons, the claim was recalculated to a higher amount pro-actively by the lender and without further input from the CMC, should have had a proposed remedy in the consultation.
The consultation document correctly concludes that in circumstances where the CMC has not completed any additional work in relation to the extra compensation awarded, it should not levy a charge for it. An additional consideration is that the CMC should have been satisfied that the customer’s intitial compensation amount was correct. Furthermore this relates to another issue repeatedly raised by consumers about the point at which a CMC contract is concluded. We believe that in respect of each claim the contractual obligations of the CMC and consumer end at the point that either:
• No PPI/PBA or potential claim is identified.
• The complaint is not upheld by the PPI provider (or the Financial Ombudsman Service if applicable).
• The initial complaint is upheld, the compensation awarded and the CMC’s success fee is paid.
This is an issue that is increasingly raised by consumers on our forum and we would like to see the Regulator’s position clarified and reflected in the Conduct of Authorised Persons Rules, rather than by way of guidance as it currently appears to be.
6. Impact Assessment
We have no comment to make in this section.