Out-Law / Your Daily Need-To-Know

FCA confirms first fines of claims management companies

Out-Law News | 19 Dec 2019 | 11:26 am | 3 min. read

The Financial Conduct Authority (FCA) has confirmed its first fines of claims management companies (CMCs) for poor practices since it became responsible for their regulation in April 2019.

Professional Personal Claims Ltd (PPC) was fined £70,000 for misleading consumers in a case opened by the previous Claims Management Regulator (CMR), but closed by the FCA (18-page / 2MB PDF) after PPC dropped an appeal. Separately, the first-tier tribunal upheld a £91,000 fine imposed on Hall and Hanley Ltd (H&H) by the CMR, in a case argued before the tribunal by the FCA.

Regulatory enforcement expert David Hamilton of Pinsent Masons, the law firm behind Out-Law, said: "The FCA has shown itself more than willing to make early use of new regulatory powers. Firms would do well to take heed".

Hamilton David

David Hamilton

Senior Associate

The FCA has shown itself more than willing to make early use of new regulatory powers. Firms would do well to take heed.

"Although the FCA inherited these cases at quite a late stage from the Ministry of Justice, they nevertheless represent the first enforcement actions against CMCs since the FCA assumed responsibility for the industry in April 2019. They will not be the last. The FCA's assumption of responsibility marked a step change in regulation from the Ministry of Justice; the FCA operating a more stringent and consumer-focussed regime. Treating customers fairly, a requirement enshrined in Principle 6 of the FCA's Principles for Businesses, has always been an FCA priority and these cases are a timely warning for others involved in the claims management industry," he said.

Hamilton added: "CMCs would also be advised to consider how the FCA has approached the consumer credit sector since it took over from the OFT in April 2014, with hundreds of firms having their permissions revoked for failing to act openly and honestly with the FCA or to meet the FCA's threshold conditions".

PPC was originally investigated and fined by the CMR, part of the Ministry of Justice, under the previous regime. It appealed to the first-tier tribunal, and the FCA took over regulation of CMCs while its appeal was pending. PPC withdrew its appeal after reviewing the evidence put forward by the FCA, which then imposed the £70,000 fine on the basis of the failings identified in the CMR's original penalty notice.

The CMR found that PPC had breached its conduct rules by using websites and marketing materials that were misleading, and by submitting misleading materials to financial firms in support of its customers' claims for mis-sold payment protection insurance (PPI). PPC used the names and logos of five major banks in its marketing materials, which the CMR found was liable to mislead consumers into believing that they were submitting PPI claims directly to their banks rather than engaging a CMC for a fee. It also used very similar or identical factual allegations for different clients in its claims to the five banks.

H&H was also fined by the CMR under the previous regime. The CMC sent PPI marketing text messages to potential customers without first confirming that those people had consented to receiving the messages. The CMR also found eight examples of client signatures on letters of authority and other claim documentation that had been copied without authorisation during a review of 16 sample files.

The tribunal upheld the CMR's decision in its entirety.

Contentious regulatory expert Jonathan Cavill of Pinsent Masons said: "Firms and consumers will welcome these decisions because, whilst there is an appreciation that CMCs are important to customers obtaining compensation where it is rightly owed, there have been instances where CMC behaviour has left a lot to be desired and not always demonstrated CMCs acting with integrity or in consumers' best interests".

Cavill Jonathan

Jonathan Cavill

Senior Associate

Firms are likely to be more robust in challenging poor CMC behaviour during the complaints process, and consumers should take comfort in knowing the FCA is keen to correct the CMC industry.

"Whilst CMCs recently came within the FCA regulatory perimeter and there have been papers and a 'Dear CEO letter' published, it did seem that poor CMC behaviour was continuing unchecked," he said. "These decisions should have a direct impact on the way in which customers make complaints and firms deal with CMCs, and the way in which CMCs take their business forward."

"Firms are likely to be more robust in challenging poor CMC behaviour during the complaints process, and consumers should take comfort in knowing the FCA is keen to correct the CMC industry and ensure that all businesses which fall within the FCA perimeter act with integrity, care, skill and diligence. Firms should, however, ensure that they continue to comply with their own dispute resolution obligations, even where CMC behaviour is to be challenged," he said.