bandwagon
The fear of claims management firms shouldn’t be underestimated. “It’s open season at the moment with claims monger companies springing up right, left and centre,” says Alan Lakey, director of Highclere Financial Services. “The regulator, press and claims mongers tend to drive this forward with their musings on the next mis-selling scandal.” Which? recently exposed claims companies for poor practice, claiming they offered misleading advice, unfair contract terms and a lack of transparency about fees. Following a mystery shop of 25 CMCs, Which? found most of the companies called didn’t follow the rules set out by the Ministry of Justice and identified problems with every company investigated. Two thirds failed to advise the caller about the FOS despite being required to do so. Ray Boulger, senior technical manager at John Charcol, says better regulation of claims companies is imperative. “I saw a Watchdog programme recently on ambulance chasers’ activity on PPI and it is a shame that their regulator, the Ministry of Justice, is not more pro-active in cancelling licences to operate in the market when wrongdoing is identified, as well as banning the directors of any such companies from operating in any other field they regulate and passing the information to the FSA,” he says. “As a starting point I think the MoJ should make it a condition that to be allowed to operate in this market all cold call marketing, whether by phone, text or email, should either be banned, as it is with some other financial products, or at the very least only allowed from a UK phone number or UK based ISP. “If it doesn’t have the power to do this the government needs to pass legislation so it can deal with this abuse. By requiring any such marketing to come from a UK base the sender could be tracked and appropriate action taken, whereas at the moment the regulator is thwarted by companies using an overseas base to send out this spam.”
by
Sally Laker managing director, Mortgage Intelligence
I would certainly agree that there is a strong possibility that the industry will see an increase in complaints relating to historical sub-prime, self-cert and interest-only business. I believe this will partially be due to the ongoing global squeeze on finances. If the public are encountering financial issues then, in some instances, they may look for somebody to blame for unrelated difficulties they encounter. However, I think the primary factor will be the actions of claims management
fooTing The bill
The big question in all of this is, who pays? “If a customer has suffered a financial detriment as a result of negligent advice, the broker firm or their network is liable for damages,” says Rob Killeen. “PI insurance is a compulsory requirement and ultimately the insurer will be responsible for meeting those claims.”
But if the firm perpetrating the mis- selling is no longer in business – a distinctly plausible possibility given the fallout in the mortgage industry following the demise of sub-prime – it will be the Financial Services Compensation Scheme that pays out on customer claims. Depending on the size of the problem, that could see brokers still in the industry without any responsibility for mis-selling footing the bill for cowboys who’ve since headed for the hills. Again. “This is a risk that we have as an industry,” says Sinclair. “It provides consumers with a reason to trust firms as we indemnify our customers. It makes self regulation as well as good supervision very important.”
It is the same justification given by the FSA. “The FSCS acts as a safety net to protect consumers, leading to greater confidence in their dealings with financial firms,” says an FSA spokesman. “This, in turn, directly benefits all firms and their
companies. Although they are still making the majority of their money in the PPI arena the firms are already starting to look for the next source of income. Historical interest-only sales seem to be the first target for these firms and we are aware of CMCs which have been active in this market for the past 12 months.
Unfortunately the manner in which a number of CMCs operate mean that both lenders and intermediaries are likely to have to dedicate resources to dealing with mortgage complaints that are unfounded and spurious in nature. Clearly there are good CMCs in operation but unfortunately it is an industry that requires much tighter controls and regulation than is currently in operation.
staff. All firms benefit from the protection offered by the FSCS so it is right that they should contribute to the compensation fund.”
All well and good, but Kevin Duffy’s attitude is perhaps closer to the hearts of most brokers.
“It is an ongoing frustration for all of us who work in financial services and to that end there should be redress after the event for negligent advisers. I would propose that even after a rogue broker has left the industry there should still be a right of recourse to him for any negligence and in that context the FSA decision not to have individual registrations / approved persons regime right across the industry from 2004 was extremely disappointing.”
frighT nighT
Not everyone believes in ghosts and that sub-prime, interest-only and self-cert mis-selling is just a tall tale designed to scare could be argued. But where there is smoke there is often fire and it appears there is cause enough for concern among the industry’s senior people that they are discussing coping strategies. For brokers, the important thing to take away is that it is critical to check and recheck records and raise any worries with compliance teams before fright night becomes a living nightmare. n
mortgage introducer OCTOBER 2011 37
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