CMCs using “special arrangements” with banks to avoid investigating PPI cases


CMCs warned against signing up clients on the spot

Some claims management companies (CMCs) are using special pre-submission arrangements with the major banks to avoid investigating PPI cases, it has emerged.

According to the Claims Management Regulation Unit (CMRU), based at the Ministry of Justice, fewer than half the enquiries submitted to banks by some CMCs “have a valid product attached to them”.

In its latest bulletin, the CMRU said: “These CMCs are clearly making insufficient enquiries of their clients before contacting the financial business.

“This practice is a breach of the rules of conduct which require CMCs to take all reasonable steps to investigate the existence and merits of a potential claim. Enforcement action could result from such breaches.”

A spokeswoman for the CMRU explained that pre-submission arrangements between the banks and the more active CMCs were set up to enable “those CMCs to submit new client data in an agreed format and quantity to the banks which screen the data and confirm whether a PPI policy was sold”.

This meant that the CMCs could avoid submitting large numbers of ‘data subject access requests’ or claims where there may be no policy.

However, the spokeswoman said: “We are finding that some CMCs are deferring too much to this process and failing to make sufficient or any enquiries of their client about the existence of PPI.”

He said the CMRU had also become aware, during audits or from complaints by consumers whose claims had been reviewed by banks, that when the banks made additional awards, some CMCs were automatically charging further fees whether or not they had done any extra work.

The CMRU said in its bulletin that the general position was that agreements were regarded as concluded at the point at which the client received redress and an invoice from the CMC.

Companies which sought further fees from clients where contracts had concluded could be in breach of the rules or guilty of “an act of fraud by false misrepresentation” under section 2 of the Fraud Act 2006.

A further warning in the bulletin, aimed at CMCs marketing their services at shopping centres or events, reminding them that they must comply with the rule requiring clients to be provided with information ‘in good time’ before the conclusion of a contract.

This means that CMCs are unable to contract with consumers during initial contact at a marketing stand and clients have to take the information away with them before considering what to do.

The bulletin also said that draft regulations had been laid before Parliament to set up to allow CMCs to be fined by their regulator for rule breaches.

Subject to the “normal parliamentary clearance process”, it was “intended that the financial penalties scheme will be implemented by the end of 2014”.

Kevin Rousell, head of the CMRU, said: “We do not tolerate bad practice from the companies we regulate and regularly liaise with companies to drive malpractice out of the industry.

“We are changing the law to further toughen the regime, including the introduction of fines, and ensuring firms cannot buy-in any contact details which have been gathered unlawfully.”

Mr Roussel last month described the ability to fine CMCs for rule breaches as the “most significant addition” to his unit’s armoury.


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