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FCA issues warning letters to complaints management companies

The Financial Conduct Authority has sent letters to all its temporarily-permissioned claims management companies (CMCs), reminding them of their expectations and warning them over some behaviours it has observed.

CMCs have been heavily criticised over huge numbers of often spurious complaints lodged against lenders, in some cases risking their ability to trade.

 

A surge in the number of complaints was heavily implicated in the demise of Wonga, perhaps the best-known payday lender over recent years.

 

In Wonga’s case, it filed for administration in August 2018, following the sudden arrival of 10,500 compensation claims against the lender, which caused it to seek £10m of emergency funds from its investors.

 

Despite that cash injection, the lender buckled just weeks later, citing the number of complaints it had received and the cost of processing them. Each case that the Financial Ombudsman Service (FOS) processes costs the lender approximately £500.

 

In its letter to CMCs, the FCA said it had seen evidence of cases where:

  • CMCs are acting for their customers without getting their appropriate consent or completed letters of authority;
  • CMCs are submitting letters of authority and claims in fictitious customer names;
  • There is no relationship between the customer and the financial service provider receiving the claim, and;
  • CMCs’ financial promotions do not comply with its rules.

The vast majority of claims date back to before 2014, when the FCA took over responsibility for high-cost, short-term and high-cost lenders.

 

According to the FOS’s most recent figures, complaints against short-term lenders rose 130 percent in 2018-19, with 40,000 new complaints brought.

 

Jason Wassell, chief executive of the Consumer Finance Association, said: “We have now reached the point where more than nine complaints in 10 are generated by these claims management companies. The complaints are often of poor quality, so we are not surprised that the Financial Conduct Authority has identified cases of forged signatures, of not even the most basic of checks being carried out and data misuse.

 

“We regularly hear of customers unaware that a complaint, and even legal action, is being carried out on their behalf. On several occasions we have found that these complainants are current customers, that appreciate the services we provide and are appalled that these actions have been carried out in their name.

 

“Lenders have reported numerous cases where basic information - such as date of birth - or indeed the customer signature supplied is clearly wrong. This raises serious questions as to where this data is coming from, as it isn’t always coming from the customer."

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