CMC regulator warns about poor service standards


FCA: Standards are improving

The regulator of claims management companies (CMCs) has highlighted poor service standards, inappropriate sourcing of customers and misleading advertising as among its key areas of concern.

Alison Walters, director of consumer finance at the Financial Conduct Authority (FCA), said that while standards were improving, there were areas where firms “are not meeting our expectations”.

In a letter to all regulated CMCs, she said that, since the FCA took over in 2019, there has been a steady decrease in the number of CMCs, with lead generators now accounting for more than half of the industry.

Ms Walters said a key focus over the past two years has been on the “halo effect” of CMCs carrying out work not covered by CMA regulation but customers assuming it was.

“We engaged with 26 CMCs which process unregulated claims. Following our assessment, the majority ceased their unregulated claims activity. The number of inbound contacts we receive about unregulated claims has since fallen.”

Another was compliance with rules on client money, as a result of which a third of CMCs decided to stop handling it. “We observed raised standards,” Ms Walters said, and around 80% of historic client money has now been repaid.

The third was lead generation after the CMA found that most of the 30 CMCs it investigated who were either referring or obtaining leads from third parties were non-compliant with its requirements.

“Our review resulted in improved systems and controls to prevent the unlawful processing of data…

“Furthermore, the proportion of complaints upheld by the Claims Management Ombudsman has continued to reduce over time, and we have also observed an uplift in the number of claims reported by CMCs as being halted due to not having a good arguable base.”

Nonetheless, service standards would be one of the three priority areas over the next two years, Ms Walters continued.

This will include looking at CMCs that submit high volumes of complaints to the Financial Ombudsman Service but have low rates of success.

“We expect CMCs to engage with potential customers meaningfully at the pre-contract stage, outlining the available options and ascertaining why customers wish to proceed,” she explained.

“Potential claims should be investigated diligently, and halted where it is reasonably suspected the claim is without merit.”

The second priority will be personal injury – “We will review the marketing literature and due diligence conducted around the sourcing of personal injury leads and will look at how firms are ensuring and monitoring good outcomes under the Consumer Duty” – and the third obtaining a better understanding of what areas lead generators are working in.

Ms Walters highlighted a range of other regulatory issues for firms, including misleading advertising – where “compliance is still unsatisfactory, and we sometimes find multiple rule breaches within individual promotions, and repeated breaches despite our intervention”.

She added that the CMC has recently had concerns specifically around housing disrepair and motor finance claims advertising.

On the latter, the CMA expects CMCs to ensure customers understand the current delay in the requirement for firms to provide a final response to complaints before entering into a contract with the CMC.

“CMCs must also ensure that their advertising does not mislead customers. Claims that lenders are ‘refunding’ or providing details of average claim awards that cannot be substantiated could mislead customers about the services being provided,” Ms Walters said.

There was also continued “inappropriate” sourcing of customers, with some CMCs accepting leads from third parties without carrying out and recording sufficient due diligence checks.

She was concerned too about a “poor attitude to regulatory obligations”, with an “unacceptable number” of CMCs yet to register a principal user on the CMA’s reporting platform, meaning their returns were overdue.

Finally, the regulator cautioned CMCs to “act responsibly” when they submitted high volumes of enquiries or claims in a short period of time to a particular firm.

If they did not receive a response to all within eight weeks – the point at which they can complaint to the ombudsman – “an automatic escalation to the ombudsman at the earliest opportunity may not be acting in the best interests of the customer”.




Leave a Comment

By clicking Submit you consent to Legal Futures storing your personal data and confirm you have read our Privacy Policy and section 5 of our Terms & Conditions which deals with user-generated content. All comments will be moderated before posting.

Required fields are marked *
Email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Blog


Choose the right social media platforms for your business

Two-thirds of the world’s population are on it for almost two-and-a-half hours each day, on average. Each uses at least half a dozen different platforms every month.


Managing risk: a guide for law firms

Traditional risk management approaches typically focused on responding to incidents after they have occurred. Best practice today demands a more forward-thinking approach.


Legal tech in 2025: Data, data and more data management

Even the staunchest sceptics are now recognising that generative AI is here to stay. But was 2024 the year that the AI ‘hype bubble’ burst?


Loading animation