Complaints in focus: Claims

management companies

www.legalombudsman.org.uk

Summary 1

Report by the Head of Claims Management Complaints 2

Introduction 2

What our evidence tells us 3

Unjustified fees and poor costs information 4

Delays and failures to progress cases 5

Failing to keep customers informed 6

Cases where we found no poor service 7

Analysis and conclusion 8

Resources 10

Contents

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Summary

In this report we focus on the types and causes of complaints regarding claims management companies (CMCs).

CMCs take up different types of claims on behalf of people in return for an upfront fee and/or a portion of any compensation paid if the claim is successful.

During the first six months since launching the CMC complaints service in January, the Legal Ombudsman was contacted almost 9,000 times – an average of 1500 contacts a month. We accepted 648 complaints for investigation, resolving 478 of these. More than half (53%) of the resolved complaints required a remedy to put things right for the customer.

Research commissioned by our scheme reveals low levels of public confidence in CMCs or their ability to handle complaints effectively. This research, combined with our complaints data, suggests there are areas for improvement.

This report identifies some of the main causes of complaints about CMCs, as well as information about the sectors in which they operate, to illustrate what can go wrong. It also provides insight and analysis with reference to real case studies, to help service providers understand the consequences of poor service and what they can do to reduce complaints in the future. We conclude that: • The number of complaints about costs, delays, poor advice,

and a failure to keep customers informed are damaging the reputation of the claims management industry;

• CMCs could manage customer expectations better by being clear about potential costs and timeframes for completing work; improving communication with customers; and in responding to complaints more effectively; and

• Good complaint handling can actually benefit a company’s reputation and the likelihood of a customer returning in future.

The Legal Ombudsman has a number of tools available to help service providers deliver an effective complaint handling service, which we list at the end of this publication.

Complaints in focus: Claims management companies

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Report by the Head of Claims Management Complaints

IntroductionThe Claims Management Regulator received more than 8500 customer complaints regarding CMCs in 2013/14. This means more than 80% of the contacts it received from the public were about problems with their service provider1.

Research commissioned by our scheme also revealed that more than two thirds (76%) of the public surveyed were not confident that CMCs tell the truth to their customers2. They said they were not confident their rights are protected by CMCs or that a CMC would handle their complaint properly. And a third of CMC users said that they wouldn’t know who to complain to if something went wrong with the service they received.

The truth is that until this year, there was very little customers could do if they received poor service from a CMC, because no formal redress system existed. That all changed in January when the Legal Ombudsman opened its doors to CMC customers. In the first six months of operating this service, we resolved 478 cases, learning some valuable lessons along the way.

The claims industry is worth £772m a year; making it big business for the companies involved3. Unsurprisingly, CMCs and law firms collectively spend £76m a year on marketing and advertising in a bid to get a slice of the claims pie4. But, despite spending so much to enhance their reputations, many firms may be achieving the opposite due to poor customer service and not taking complaints seriously. If building reputation is the aim of the game then there is a strong business case for good complaint handling. Drawing lessons from research carried out in the legal industry, we know there is a strong case for directly increasing profitability with an improved complaints handling process5.

However, it’s not just profitability that service providers need to take into account. Customers deserve a decent standard of service; they are paying for one after all.

When making a claim against product mis-selling by their bank, for instance, the last thing a customer needs is to have to complain about the CMC handling their claim too. A CMC is supposed to take the stress out of managing a claim by taking on the majority of the work in return for an upfront fee and/or a portion of any compensation paid if the claim is successful. But sometimes, as our case studies will show, firms make the process more stressful for customers.

Complaints in focus: Claims management companies2

1Claims Management Regulator Annu-al Report 2013/14: https://www.gov.uk/government/uploads/system/up-loads/attachment_data/file/337975/claims-management-regulation-annu-al-report-13-14.pdf2CMC Evaluation and Impact Report 20153Claims Management Regulator Annu-al Report 2014/15: https://www.gov.uk/government/uploads/system/up-loads/attachment_data/file/444434/CMR_Annual_Report_2015_WEB__fi-nal_.pdf4Law Society Gazette “Claimant lawyers spending £76m a year on marketing”: http://www.lawgazette.co.uk/practice/claimant-lawyer-adver-tising-soars/5050814.article5A business case for good complaint handling: http://www.legalom-budsman.org.uk/?portfolio=a-busi-ness-case-for-good-complaint-han-dling-economic-insight

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What our evidence tells us94% of complaints received by the Legal Ombudsman in its first six months of operating its CMC service were about CMCs dealing with financial product claims. These include mis-sold mortgages, investments and interest rate swaps; but the majority (88%) were about mis-sold Payment Protection Insurance (PPI).

PPI is the UK’s biggest mis-selling phenomena of its kind, with banks setting aside more than £26 billion in compensation for people who were sold policies they either didn’t need or couldn’t claim on6. While new cases against PPI providers have slowed, they still accounted for more than 200,000 complaints to the Financial Ombudsman Service (FOS) last year. 79% of these were handled by CMCs7. Meanwhile, some firms have turned their attention to potential mis-selling of packaged bank accounts, which offer customers extra features such as phone insurance or better rates on loans8. This was a large factor in non-PPI cases to the FOS, rising 45% on last year, and could factor more heavily in the types of complaints we see coming through in future9.

Of those transactions being managed by CMCs, 648 generated complaints that were accepted by our scheme for investigation during the first six months of operating10. This number is lower than our predictions anticipated; and it does give some cause for positive reflection, since our scheme was preparing for a greater number of complaints.

Public awareness of the Legal Ombudsman could be a factor in this, particularly with the CMC jurisdiction being so new. We have worked hard on our awareness raising strategy, achieving coverage on peak time TV shows, in regional newspapers and across various social media platforms; but this needs to continue to ensure people know where to go for help when the time comes. We have also worked closely with CMCs since launching to adequately prepare them and to help them deal with complaints at the first tier.

But perhaps the service levels of CMCs aren’t as bad as the public perception of them would suggest. This lower level of complaints correlates with a reduction in the number of surrendered, suspended, and cancelled authorisations of CMCs by the Regulator. There were roughly half as many authorisations cancelled in 2014/15 compared to the previous year11.

Time will tell if the claims management industry is improving. The rest of this report will look at some of the issues we have seen, any patterns or trends in the types of complaints being generated, and what the Legal Ombudsman has done to help.

Complaints in focus: Claims management companies

6Express newspaper “The clock ticking for PPI claims” http://www.express.co.uk/finance/personalfi-nance/599161/The-clock-ticking-PPI-claims 7FOS Annual Report 2014/15 http://www.financial-ombudsman.org.uk/publications/ar15/ar15.pdf 8Telegraph “PPI and packaged bank accounts bring in more complaints for the Ombudsman” http://www.tele-graph.co.uk/finance/newsbysector/banksandfinance/11821573/PPI-and-packaged-bank-accounts-bring-in-more-complaints-for-the-Ombudsman.html9FOS Annual Report 2014/15 http://www.financial-ombudsman.org.uk/publications/ar15/ar15.pdf10Between 28 January-31 July 201511Claims Management Regulator Annu-al Report 2014/15 https://www.gov.uk/government/uploads/system/up-loads/attachment_data/file/444434/CMR_Annual_Report_2015_WEB__fi-nal_.pdf

Unjustified fees and poor costs informationOf the 478 cases we resolved, more than half (53%) required a remedy to put things right for the customer. Around a third (34%) of cases required the firm to limit/ waive fees or pay compensation; with the average total financial remedy ordered being around £650.

Our data tells us that around 40% of the disputes we see are about costs. For instance, unjustified fees, a failure to refund upfront fees, or because of contractual disputes over fees.

Take this example: Mrs A used a CMC to help her recover unfair charges by a large number of credit card companies, banks, and other financial service providers. She agreed that she would pay the CMC 25% plus VAT of any charges they recovered. The CMC went on to recover more than £800.

Mrs A set up a standing order to pay the CMC for this work and made a payment of £30 every month for three and a half years. However, she did not receive regular updates regarding the status of her debt. She eventually wrote to the CMC to ask if she had paid off her bill but did not receive a response. Mrs A contacted them three more times over the next six months before the CMC finally acknowledged that Mrs A had paid them more than she owed, offering her a refund.

Mrs A accepted the refund but had five separate claims ongoing with the CMC, about which she’d not received any updates in writing for four years. In the end she told the CMC she wanted to cancel the remaining claims. The CMC agreed to the cancellation, but charged Mrs A £2000 in cancellation fees for the work they had already completed on the claims. Mrs A was not happy with this fee and complained to the CMC. In response, the CMC offered her a 50% reduction on the cancellation fee. Mrs A was still unhappy and brought her complaint to the Legal Ombudsman.

Our investigation found that there were service issues. For instance, the CMC: hadn’t kept Mrs A regularly updated during the five years it took to deal with her claims; failed to respond to queries and concerns she raised with them; did not set out clearly the potential costs of cancelling the contract; and had charged for duplicated paperwork that wasn’t relevant.

When we explained this to the CMC it agreed to reduce its cancellation fee by 75% to £500. They agreed this could be

Complaints in focus: Claims management companies4

Report by the Head of Claims Management Complaints

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paid back in monthly instalments of £15. This meant that Mrs A could pay back the amount on a more affordable basis. The company also acknowledged that the cancellation costs were not as clear as they could be and agreed to review its contracts.

Mrs A was pleased with this and accepted it as a resolution to her complaint.

This shows that it would be in all parties’ interests if CMCs were to provide regular updates to customers and respond to queries as soon as they arise. In addition, firms should be clear about cost information and cancellation fees and only complete work that is essential and necessary to progress a claim.

Delays and failures to progress casesAround a quarter (23%) of the complaints we see are about delays in progressing claims or a failure to progress cases properly at all. A further 10% are about a failure to provide adequate advice.

Take Mrs B’s case. She instructed a CMC to make a claim on her behalf for mis-sold Payment Protection Insurance (PPI) against her bank. The CMC confirmed the existence of the PPI policy and subsequently made a claim.

Unfortunately, the CMC lost key documents, including a final response from the bank, and ultimately missed the FOS’s six month timeframe for escalating the complaint after the bank rejected it.

Mrs B complained to the CMC, convinced that she had suffered a financial detriment by missing out on the opportunity to make a claim to FOS. However, the CMC’s response was unsatisfactory. Finally, Mrs B brought her complaint to the Legal Ombudsman. We investigated and discovered that there was a six month delay between the CMC asking the bank for a copy of its final response letter – having lost the original copy itself – and taking further action to chase the bank.

By way of a remedy, we ordered the firm to pay £250 in compensation.

In a similar case, Mr C instructed a CMC in respect of potential claims for mis-sold Payment Protection Insurance (PPI) policies against a credit card provider.

His case was time-barred from consideration by FOS because six months had passed since the issuing of a final response from the credit card provider rejecting his claim. Mr C complained to the CMC when he realised it had failed to advise him that 1) the lender had rejected his claim and 2) he had six months in which to take the claim to FOS. Mr C further complained that the company had failed to update him at all throughout the course of his case.

Complaints in focus: Claims management companies

Complaints in focus: Claims management companies6

Our investigation confirmed that it was reasonable to have expected the CMC to consider the FOS’ deadline as soon as they received confirmation that Mr C’s claim had been rejected. As a CMC dealing with mis-sold PPI claims on a day-to-day basis, it would have known that the expiry of the six month FOS deadline would be a key date and that Mr C should have been contacted at this stage.

Despite the poor service, the CMC did at least take Mr C’s complaint seriously, offering him £250 in compensation. However, Mr C brought his complaint to the Legal Ombudsman to seek a further view on the matter. We recommended that the CMC offer a further £100, which was accepted by both parties.

Both cases highlight the need for CMCs to exercise due diligence, which includes being aware of industry deadlines and factors that affect a customer’s claim. They should also have a robust procedure in place to ensure claims are followed up at key dates in the claims process. CMCs should be aware that lenders have an eight week deadline in which to provide a response and it is reasonable to expect efforts to be made by the CMC to confirm the lender’s position after this deadline has passed.

Failing to keep customers informedWe also see complaints (currently around 6% of those accepted for investigation) about CMCs failing to keep customers informed. Take the example of Mr D: he was contacted at home by a CMC who offered to explore whether he had any claims for mis-sold PPI. Mr D went on to instruct the CMC after receiving confirmation that he had a potential claim against his bank.

Mr D had previously been declared bankrupt in 2010 and discharged in 2011. He had taken out the personal loan prior to his bankruptcy. If a PPI policy is mis-sold before a person is made bankrupt, any refunds are classed as an asset. This means that it is part of the bankruptcy estate. The official receiver therefore owns any money that results from a claim rather than the bankrupt individual – in this case Mr D.

When Mr D completed the CMC’s application form, he was asked “Are you currently in an IVA/Debt Management/Bankruptcy/Arrears?” To all of these questions, Mr D answered “No.” The company asked no further questions about this and proceeded to make the claim to Mr D’s bank.

Report by the Head of Claims Management Complaints

7Complaints in focus: Claims management companies

The bank subsequently upheld Mr D’s complaint and agreed to a refund of the PPI payments he had made plus interest, totalling almost £10,000. However, the bank then explained to Mr D that as the policy was taken out before he was made bankrupt, the refund would be paid directly to the Insolvency Service. The bank asked him to sign a form enabling them to make payment. Mr D then received two invoices from the CMC amounting to £3500, which he was to pay in full within 14 days.

Mr D initially sought the advice of the Citizen’s Advice Bureau who drafted letters to the CMC on his behalf before guiding him to the Legal Ombudsman’s complaint process.

The Legal Ombudsman’s investigation found that the company’s application form suggested only that current insolvency proceedings needed to be disclosed. At the time of completing the form, Mr D was a discharged bankrupt and he therefore truthfully answered the question.

The correct question should have been “Are you currently, or have you ever been, in an IVA/Debt Management/Bankruptcy/Arrears?” This would have ensured that the company knew that Mr D had no right to receive any value from the claim.

The Legal Ombudsman determined that the fees claimed by the CMC were unjustified. It was agreed with the CMC that the fees they were claiming would be waived in full.

Cases where we found no poor serviceNot all of the complaints we see necessarily result in us finding poor service after investigating. Sometimes, complaints make their way to our scheme as a result of unrealistic customer expectations. Customers can also complicate matters from time to time by taking matters into their own hands.

Take this example: Mrs E instructed a CMC to make a claim on her behalf for mis-sold Payment Protection Insurance (PPI). She signed a letter of authority and the CMC’s terms and conditions. Following their initial enquiries, the CMC confirmed that Mrs E did have a potential claim against her bank. The CMC sent her a pre-populated questionnaire with the details of her claim and the reasons she believed she was due a refund. The CMC requested that she sign the forms and return them in the enclosed pre-paid envelope.

In the meantime, the bank also sent a customer questionnaire to Mrs E for her to complete and return to them. The only difference between the two forms was that the CMC’s version included their name as the third party acting on behalf of Mrs E.

Complaints in focus: Claims management companies8

Mrs E returned the bank’s copy of the questionnaire to the bank directly but she didn’t tell the CMC she had done this.

Soon afterwards the bank offered a refund of £170 to Mrs E. The CMC subsequently invoiced her for their fees amounting to £69.

Mrs E complained directly to the CMC arguing that they were not entitled to their fee as she had completed the claim with the bank herself by returning the customer questionnaire. She claimed that the CMC had made a claim to the bank without her authority. Mrs E further complained that the CMC had passed her account to a debt recovery company who were trying to recover the outstanding amount causing her considerable distress.

The CMC considered the complaint made by Mrs E and initially offered a £50 payment as a goodwill gesture. This was later increased to £200 when the CMC upheld Mrs E’s complaint and offered her an apology. Mrs E brought the case to the Legal Ombudsman as she did not believe the amount offered by the CMC was reasonable; she was seeking £500 in compensation.

The Legal Ombudsman’s enquiries determined that there was no poor service in this case. Mrs E made the choice to send the completed questionnaire directly to the bank and not to the CMC, despite having previously contracted with them to pursue the claim on her behalf.

She also signed a letter of authority at the outset giving the CMC exclusive authority to act on her behalf for the duration of the contract to pursue her claim. There was no evidence that Mrs E had cancelled the agreement she had signed with the CMC, the terms of which required that any cancellation needed to be in writing.

In the investigator’s view the CMC had provided a reasonable level of service and Mrs E was contractually obliged to pay its fees as the claim was successful. The referral of her matter to a debt collection agency in all of the circumstances did not constitute poor service, though it was an unfortunate way to conclude the relationship between her and the company.

Analysis and conclusionOur evidence shows that a number of complaints to CMCs and our scheme are being driven by genuine customer concerns regarding poor costs information and questionable levels of service, particularly involving delays and failing to progress claims. The case studies demonstrate how frustrating and time consuming this

Report by the Head of Claims Management Complaints

EVIDENCE

9Complaints in focus: Claims management companies

poor service can be for the people it affects. They also support the case for an improved approach to complaint handling at the first tier i.e. within companies’ own customer service teams. We at the Legal Ombudsman believe in a just and fair service for all. As a result, we are pleased to have been able to help the people mentioned in our case studies as well as the hundreds of customers whose cases we haven’t included here. This report highlights the benefits of having a dispute resolution scheme in place to mitigate against the consequences of poor service.

There are obviously lessons to be learned for the claims industry. For instance, CMCs should be clear about cost information and cancellation fees and only complete work that is essential and necessary to progress a claim. They should be aware of industry deadlines and factors that affect a customer’s claim. They should also ensure that claims are followed up at key dates in the claims process.

Having a robust complaints process in place will ensure that fewer complaints come to the Legal Ombudsman. Below we outline some useful resources that our scheme provides, to aid in the handling of complaints and the issues driving them.

Our research into the benefits of good complaint handling has shown that it can improve a company’s reputation and the likelihood of a customer returning in future. The same conclusions might be drawn for CMCs. Certainly, it is fair to conclude that they might see an increase in demand for services as their reputations improve. This is an area of research we could look to replicate for the claims industry in the future.

Finally, in an evaluation of public perceptions of CMCs, 68% of citizens said they were not confident that their consumer rights would be protected when dealing with a CMC, compared to just 38% who said the same of banks. With complaint volumes lower than expected this public perception may be disproportionate; particularly as bank related customer complaints number in the hundreds of thousands.

Complaints about cold calling – only some of which fall within the scope of our service since the service provider cannot always be identified – contribute to the poor reputation of CMCs and should be factored into any conclusions. The Information Commissioner’s Office (ICO) receives thousands of complaints each year about unsolicited phone calls promoting CMC services . But we should give some credit to the industry for reducing interventions by the Regulator and the lower than expected complaint levels we have received. We hope to build on this by continuing to develop a constructive dialogue with CMCs; driving standards up and bringing complaint levels down further. Certainly we want to ensure that the anticipated stream of claims being driven by continued PPI cases, as well as emerging opportunities regarding packaged bank accounts, do not translate into a multitude of CMC complaints in the future.

12Information Com-missioner’s Office https://ico.org.uk/action-weve-taken/nuisance-calls-and-mes-sages/

Complaints in focus: Claims management companies10

The Legal Ombudsman has a number of tools available to help service providers deliver an effective complaint handling service.

• There are six webinars available on our website explaining what a complaint is, how our scheme rules work, and how we will investigate any CMC complaints that we accept: http://www.legalombudsman.org.uk/helping-cmcs/#webinar

• We have a “Guide to good complaint handling” for reference by service providers when dealing with a complaint at the first tier: http://www.legalombudsman.org.uk/?portfolio=listen-inform-respond-a-guide-to-good-complaint-handling-for-cmcs

• Complaint handling courses are held regularly across England and Wales throughout the year. Visit the “Raising standards” page for more information: http://www.legalombudsman.org.uk/raising-standards/

• And sign up for our CMC newsletter here: http://eepurl.com/byw6rT

We also have resources for consumers:

• Our “Here to help” leaflet explains how our scheme rules work, what sort of complaints we can help with, and how to make a complaint.

• We have a dedicated forum page on Money Saving Expert, to answer any burning questions: http://forums.moneysavingexpert.com/showthread.php?p=69186684&utm_source=MSE_FS&utm_medium=Email&utm_term=15-Sep-15

• And there is a dedicated consumer guidance page about who deals with which complaints. It also includes specialist information and videos regarding claims management issues: http://www.legalombudsman.org.uk/cmc/#consumer-guides

Resources

www.legalombudsman.org.uk