13th November 2013
The Ministry of Justice is giving itself the power to fine claims chasing companies – particularly those that are using data obtained through unsolicited calls and texts.
Significantly, it will be up to the firms themselves to audit the data to check it is legitimate. The new powers, which still have to make their way through Parliament, come into force next year.
A Ministry of Justice ban on fees for referrals has already seen a big drop in numbers of chasers earlier in the year, though this appears to be more for firms dealing with personal injuries than for missold financial products, which is really the territory where Mindful Money gets concerned.
It is significant that the firms themselves will have to audit whether the information they are using has come from legitimate or nefarious sources rather than passing the buck on to their ‘information suppliers’.
The MoJ will also add 20 more staff to its enforcement team bringing it up to around 100 by the end of this year.
The new set of rules are also expected to give claims companies a duty to make sure the claims they are submitting have a realistic chance of success, as well as ensuring full evidence is provided to back up any allegations.
The quotes from the MoJ and the minister are certainly impressive.
Head of the claims management regulation unit at the MoJ Kevin Rousell says: “We do not tolerate bad practice and continue to take action against companies which break the rules, including removing their licence to trade. Issuing fines will be an important new weapon for us.”
Justice minister Shailesh Vara says: “We will not tolerate companies which waste hardworking people’s time and money through their own laziness, incompetence or frankly dubious practices. We are already making sure rogue companies are shut down – and now we are ensuring those who are wasting everyone’s time will pay for it.”
Mindful Money has a few thoughts on the issue.
First this isn’t this administration’s fault, but arguably this action should have been taken years ago. Clearly without misselling and, in particular, the industrial scale of payment protection insurance misselling by banks, this sector would have been much smaller.
Yet, it seems we have had to wait until it got so far into the public consciousness, and indeed for some people to see a week without a call as the exception, before action was taken.
This all came about despite the fact that when it comes to financial services claims, access to the Financial Ombudsman Service is free and it provides an efficient service. The FOS also has no reason to pursue claims that have little chance of success nor to mine information. So it is surely legimate to ask whether FOS has been underpromoted by successive governments.
But will the fines make a difference. It is clear that some of these claims management firms, for all their rather establishment sounding names, can be here today gone tomorrow outfits.
For mainstream financial services firms, a fine can be a significant reputational blow, whether it is for incompetence, recklessness or worse.
We wonder if this applies to claims management firms who might start to regard this simply as an operational business expense. It may also be possible if they face a big fine – that the management of these companies can simply up sticks – to the building next door for example, rebrand, and start again.
We don’t have all the answers to this. But any fining system has to have ‘credible deterrence’ to borrow a phrase from the other financial watchdog the Financial Conduct Authority.
The MoJ has to ensure that its new regime is as effective as possible – that its fines hurt – and that those who fall foul of the rules find it difficult to set up another similar business again.
But we think anything that toughens the regime should be welcomed. And if you need to complain there is always FOS.