Lenders must act NOW to end the damaging behaviour of ambulance chasing Claims Management Companies, once and for all. And here’s how you can achieve it.

Predatory CMC practices

For years lenders across the UK have been on the receiving end of sharp practices and opportunistic abuse of the FOS fee structure by many Claims Management Companies. They have weaponised the “win or lose you pay” clause (whereby even if a lender successfully defends a claim from a consumer, the lender still has to pay the FOS fees) in order to force many lenders to simply concede a claim, irrespective as to whether or not they believe it to be a justified claim.

Lenders have been up in arms about this abuse of the system since the CMCs started to send out huge volumes of, often completely inaccurate and unresearched claim letters, which force lenders to spend huge sums of money on handling erroneous complaints. Due to the huge volume of these mass produced complaints, lenders have found it necessary to recruit swathes of new employees to investigate and process the complaints, as well as make significant financial provisions for fees/redress and all in the knowledge that they would have to pay FOS hundreds of pounds on each and every claim in addition to the immense cost in terms of management time and business interruption. No wonder then, that many lenders simply decided to give up and stop lending.

Cue the recent news coming out of FOS that despite ruling out tackling this problem as recently as last year, it is now consulting on the matter once again, and lenders must play their part.

Only 8% of CMC claims are upheld!

FOS has confirmed that their reasoning behind the launch of this consultation is in recognition of the fact that whilst complaints brought directly by consumers are upheld at a rate of some 42%, those submitted by CMCs on behalf of the consumer are only upheld a meagre 8% of the time. I cannot begin to calculate how much money and stress has been expended by lenders dealing with the other 92%, but those numbers make it clear, the time to act is now!

One of the key proposals under consideration by FOS is the requirement for a fee to be paid on claims submitted by CMCs, but leaving the service entirely free where the claim is submitted directly to FOS by the consumer. Under such proposals one would imagine that it would become commercially unviable for CMCs if they continued to submit 10 frivolous or vexatious claims for every genuine one, SO LONG AS THE FEE PAYABLE BY THE CMC IS SUBSTANTIAL ENOUGH!

30th January 2024

This review is a golden opportunity for lenders to press home their case as to why, once and for all, FOS must listen to their concerns and must deal with what many people describe as exploitative behavior by many of the CMCs. The consultation is already open, and my private polling suggests that not all lenders are aware of it, in fact on the contrary, most are completely unaware.

The consultation document is lengthy, running to 44 pages and may seem a daunting read for some smaller and medium sized lenders. But I urge you to make the effort and get to grips with it as a matter of urgency. Ask yourself how much these CMCs have cost you to date and how much they are likely to cost you in future, and then decide if there is anything else more pressing than investing your time into a response to FOS.

I have taken the liberty of sharing the link to the consultation https://www.financial-ombudsman.org.uk/files/324385/Financial-Ombudsman-Service-Plans-and-Budget-Consultation-2024-25.pdf and in addition to submitting your own response, please get this post out to as many of your industry colleagues as possible. FOS needs to see with absolute clarity the depth of feeling and the damage that further inaction will do to such a critical industry.