CMCs - why not cut out the middle man?
A joint note from the MoJ, FSA, FOS and FSCS issued last week sets out the role that CMCs play in financial services complaints and highlighted the potential drawbacks of engaging a third party in the complaints procedure.
The note and a follow up speech by an Ombudsman to the BBA have got me thinking how firms might now have an opportunity to avoid dealing with CMCs altogether.
The FSA's rules ensure that firms deal with complaints whether they are 'brought by or on behalf of an eligible complainant' (DISP 2.7). Using CMCs costs complainants significant fees: often one third of the total compensation awarded or more. Although CMCs require authorisation by the Claims Management Regulator (part of the MoJ), the quality of service these companies offer can vary substantially and therefore the regulatory bodies advise that complainants do their research thoroughly before committing financially to a CMC.
Regardless of whether a consumer complains directly or via a CMC, their complaint will be dealt with in the same way by the firm, FOS or FSCS; the note confirms that there is no discernable advantage in instructing a CMC. Instructing a CMC does not even prevent the firm from making direct contact with their customer or former customer about the complaint. There may also be occasions when the FOS or FSCS need to get in touch.
Regulated firms are obliged to deal with a complaint no matter how it is advanced. The FSA's rules require businesses to consider all complaints fairly and therefore the standardised template letters used by CMCs (however generic and unhelpful to either party) still constitute valid complaints under the rules. If a complaint is truly 'frivolous or vexatious', the FOS does have the power to dismiss it without considering the merits, but such findings are rare (under 1% of complaints). Both the FOS and FSCS now monitor the conduct of CMCs (under MOUs agreed previously) and any questionable cases could be referred to the Claims Management Regulator.
The joint note in no way aims to prohibit the use of CMCs in bringing complaints, but it sets out issues to be aware of when choosing this route and the tone is clearly critical of the claims management industry. It reminds firms that there are no longer any prescriptive complaints handling rules but that fair outcomes should always be the aim, particularly that the response to any complaint should be the same regardless of how or through whom the complainant chooses to make their case.
In a very frank speech to the BBA on Wednesday, Tony Boorman, Principal Ombudsman, put it bluntly: "Don’t get me wrong. At the ombudsman service we find it as distasteful as many others that claims-management companies 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, he noted, "many consumers actually like claims-management companies, even if they have to pay (unnecessarily) for their services. And as consumers often tell us, when we ask them why they pay for something they could do themselves: '70% of something is better than 100% of nothing'".
Boorman advocates "partnership to encourage professional interactions – to promote professionalism and to marginalise the unprofessional". He observed "an absolute priority to re-build accessible and fair complaints handling …. And to build consumer confidence that, without being represented by a claims manager, consumers who complain will get a fair and straightforward deal".
The FOS' message to firms is to avoid CMCs by avoiding conduct that leads to complaints and to give customers confidence in their complaints handling. However, taking all these points together, it appears theoretically possible for firms to avoid dealing with CMCs altogether. They could set out in complaints handling procedures (given to clients on engagement and receipt of a complaint) that they are better off not instructing a CMC. Firms could also advise against instructing a CMC upon receipt of a complaint. As long as no attempt is made to restrict the client's right to use a CMC (or any other third party), it ought not to breach Principle 6 to advise against incurring costs to pursue a complaint.
Where firms will get into difficulty is if they are seen to try to persuade complainants to breach an existing contract with a CMC. If complainants are invited to go it alone within the 14 day cooling off period required of CMC contracts, the CMCs will simply wait two weeks before making the complaint.
Perhaps, after all, Tony Boorman was right: "There is no easy way to say this. So let’s just accept it – and move on. Claims-management companies are here to stay. Complaining about them is like complaining about the weather – often justified but not very constructive".