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Claims Management Companies

The hon. Gentleman makes a good point. A constituent of mine who works for a company told me recently that a member of the public, on the advice of a claims management company, had rung it up and given it the spiel. My constituent said to her, “I’m sorry, but we haven’t been selling PPI for the last 15 years.” The lady on the other end of the phone said, “Oh, I’m really disappointed. I thought I was going to get some money.” The hon. Gentleman is exactly right that such companies raise expectations and exploit vulnerable people at a difficult time. That really should be stopped.

Based on their cold-calling fishing expeditions, claims management companies write numerous letters to businesses simply because a client recalls that they may have had a financial transaction with a company, even though no evidence is provided. The CMC-generated letters always accuse the businesses of mis-selling, citing a stock list of reasons, despite the fact that in many instances no PPI was ever sold. CMCs also buy leads, many of which have been generated by companies that follow up accident whiplash claims and then try to instigate other claims where no client discontent exists.

Ironically, members of the public do not need to use any kind of intermediary to submit a PPI claim. The consumer will be charged about 30% of their compensation if they use a claims management company, but nothing if they submit the claim themselves. The consumer group Which? estimates the average PPI claim to be £2,750, costing the consumer around £835 in CMC fees.

Claims management companies are not just unnecessary, they can be damaging to both consumers and businesses, and an example from my constituency shows how serious that can be. Ian Broadbent’s company, Blue Sky Mortgages, has to respond to a continuous stream of vexatious claims from claims management companies on behalf of clients who have never been sold PPI by his business. In some cases, his business has had no dealings with the claimants whatsoever.

That is more than a mere annoyance. When a company disputes a PPI claim, the Financial Ombudsman Service steps in. However, there are clear problems with the way in which disputed claims are handled. Businesses are charged up to £850 per case, whatever its merits, and although no fees are charged for the first three claims against a company—soon to be extended to the first 25 claims—the rate at which CMCs generate claims, often with the most scant client information, means it is not long before a business has to pay out large sums of money for doing absolutely nothing wrong.

FOS investigations further damage businesses by dragging claims on, and it can take several years for a dispute to be resolved. That can be extremely damaging for businesses, with the uncertainty and unpredictability of FOS investigations adding further pressure to businesses struggling to survive in these austere times. Businesses have no right of appeal against FOS decisions—a right that consumers and claims management companies retain—and that is at odds with some fundamental principles. Claims management companies can file claims with absolute impunity. There are no charges for false claims, and if a claim succeeds, they know the decision is final.