Financial claims: CMCs are here to stay, but stronger regulation is needed
Parliament needs to tackle lawyers, claims management companies (CMCs) and others trading in illegally obtained personal data “rather than obsessing” about phone hacking, the Information Commissioner claimed yesterday.
In a separate development, the Financial Ombudsman Service has accused some CMCs of providing a “second-rate” and even “shocking” service to people with claims against banks, but told the financial sector that it has to accept that CMCs “are here to stay”.
The Information Commissioner Christopher Graham said “we’re in danger of getting so obsessed with what journalists were or were not up to” that it risked obscuring the fact that “the citizen is actually under threat from the unlawful trade in personal data generally”.
He said: “We’ve got lawyers acting in matrimonial disputes, maintenance disputes, custody battles, we’ve got crooks trying to tamper with witnesses, there’s jury nobbling, there are debt collection agencies… and claims management companies.
“All this is leeching off personal data which is supposed to stay private but there’s a very rich trade in this and that’s what Parliament ought to be dealing with rather than obsessing about the red tops.”
Mr Graham said part of the solution would be to increase the penalties. He cited a recent “nasty case” in Bury involving a nurse in an NHS walk-in centre who was providing details of accident cases to her then partner, who worked for a CMC.
Magistrates can only hand out a maximum fine of £5,000 anyway, but in this case the defendant was fined £150 for each of seven counts. “It’s just not a deterrent,” said Mr Graham.
Meanwhile, in a speech to a British Bankers Association event on complaints-handling, Tony Boorman, principal ombudsman at the Financial Ombudsman Service, said that complaining about CMCs is like complaining about the weather – “often justified but not very constructive”.
Research shows that many consumers actually like CMCs, he said, “even if they have to pay unnecessarily for their services”, on the grounds that “70% of something is better than 100% of nothing”.
He added: “Don’t get me wrong. At the ombudsman service we find it as distasteful as many others that CMCs regularly charge large sums for a second-rate service. We find it shocking that the arguments they raise are often irrelevant – or wrong – or simply made up.
“But equally, we find it disturbing that consumers have often been sold financial products on the back of practices that would never survive an FSA compliance visit or a complaint to the ombudsman service…
“Like it or not, CMCs can’t just be wished away. And if your objective is simply to force them out of the market place, I don’t think you’re going to succeed.”
Mr Boorman set out a five-step action plan to improve the handling of financial services complaints, urging the Claims Standards Council to build “strong professional standards across its membership”.
He also called for stronger regulation of CMCs, while paying tribute to “the hard work and dedication of the small team at the claims management regulator”. He cited concerns over hidden charges, poor sales practices and “murky relationships” with debt-management companies and other financial businesses.
“As a result of these, it seems to me that large parts of the claims-management market are not functioning properly. Fees vary widely. But if complaint volumes to the ombudsman are any guide, companies with high fees seem able to secure large market shares – larger than those who charge half the price, with no discernible difference in the quality of their service.”
He said banks also need to do more in tackling mis-selling and in providing “quicker and more automatic redress when mis-selling does occur”.
Earlier this week, the claims management regulator, the Financial Services Authority, the ombudsman scheme and the Financial Services Compensation Scheme issued a joint note on CMCs and financial services complaints which sought to explain to consumers the role of CMCs and warn them of bad practices.
Rob Cheeseman 
Wouldn’t this have been an ideal opportunity for the SRA to have put down it’s marker as to its involvement as the regulator of solicitors who receive referrals from CMCs?
The only mention of the SRA in the joint note is “Solicitors are regulated by the Solicitors Regulation Authority”; shouldn’t this have been put in some context so those reading it knew where solicitors sat within the process?
As the note is intended to be read by CMCs, as well as others, it would also have been a good idea to insert details about their obligations under the SCC Rule 9.
A good opportunity missed and more evidence to suggest that the SRA is out of the loop on the regulation of referrals!