Claims companies are targeting endowment policyholders facing shortfalls on their policies, with the promise of compensation through the courts. One company is about to launch a call centre to cold-call potential mis-selling litigants, but policyholders tempted by the thought of cash should take care to know exactly what they are getting into.
The Law Society has advised endowment policyholders not to use claims companies that offer to win you mis-selling compensation free of charge via the courts. But the Law Society does say homeowners may obtain higher compensation by using solicitors than if they use the policy provider's own complaints procedures, so consumers may end up in a dilemma.
One claims company cold-called Madelaine Stuttle, who lives near Dartford in Kent. She was shocked when a salesman asked for details of her policy and offered to win her compensation. "I was about to formulate a letter to my mortgage company when I was called by a company called Endowment Refund," she says. "I was asked to give my details, they said they would look over them to see if I had a case, and said they would pursue it at no cost to me. Surely it is too good to be true?"
The company's website says: "Unlike most companies, if your shortfall is predicted to be over £5,000, we return to you 100 per cent of any compensation due to you. If your shortfall is less than £5,000, our solicitors retain a percentage of your compensation which can be as low as 10 per cent. The solicitors will be in contact with you to clarify the exact amount." The site also claims: "Endowment Refund Ltd will manage your complaint against the institution that sold you the policy."
We spoke to the three directors of the Cardiff-based company, Ian Domville, Paul Sykes and Colin Mister. They say the company does not process claims, but is paid commission to provide leads as a sub-contractor for another agency. A businessman called David Clarkson, who is based in Preston, acts for undisclosed business people and is contracted by that agency to pass potential cases to solicitors. They decide whether to take them. Only cases assessed to have 75 per cent likelihood of success are accepted.
Mr Clarkson says the idea for the business arose after his wife found she was facing a potential shortfall on her endowment mortgage of £6,000. She fought her battle for compensation through the courts rather than using the usual route of complaining to the provider then appealing to the Financial Ombudsman Service if that proves fruitless. She won and was awarded £11,400 in compensation, £5,400 of which was for the poor way her provider had conducted its business.
Mr Clarkson says there are 250 cases being processed through the courts as pilots, which he believes confirms using courts to pursue your case is effective.
The Law Society and the National Solicitors' Network, a body representing many smaller firms of lawyers, say the courts should be a practical and effective means of pursuing mis-selling claims. "Endowment mis-selling is the new personal injury," Robin Richard, operations director of the Network, says, referring to the rapid growth in personal injury claims taken through the courts in recent years.
Endowment Refund says it has a list of 1,500 homeowners with potential mis-selling claims to pursue. It is planning to establish a call centre by October to provide more potential litigants. Mr Clarkson and his business associates may join Endowment Refund in operating the call centre, but they say they will not make a final decision on whether to launch a national scheme until the results of the pilot cases are known. He declined to disclose the names of the backers of his business.
Mr Clarkson says he was in discussions with the Network about passing cases to solicitors through them. But Mr Richard tells us his organisation rejected Mr Clarkson's proposal because Law Society rules prevent solicitors paying commission to a third party for business introductions. The Society also would not sanction use of a call centre as a means of winning business for solicitors. The only way solicitors could be involved, the Law Society says, was if they take cases passed to them from claims companies. In this situation, the claims company would take a commission from an insurance policy the claimant must buy that pays legal expenses if they lose the case. This allows cases to be taken on a "no win, no fee" basis.
Mr Clarkson says this was likely to be one means of his business obtaining income. But a spokesman for the Society warns that insurance policies for court fees can be very expensive, leaving some winners gaining much less than the compen-sation awarded. The spokesman says endowment holders interested in using the courts should approach solicitors directly and not accept offers from an intermediary.
And the court route should also be considered with caution. The Financial Ombudsman Service (FOS) and the Consumers' Association (CA) have serious doubts about using the courts to seek compensation, and the awards the courts would offer. "It would be unlikely that an award from the court would be more generous than the redress awarded by the Ombudsman," a spokeswoman for the FOS says. It provides a free service to settle disputes between customers and endowment providers after the in-house process has been exhausted.
Theresa Fritz of the CA says she is not aware of any cases where solicitors have successfully handled compensation claims for mis-selling in the courts. The Association offers help and guidance to endowment policyholders concerned about what is happening to their policy and how to get redress free. Its website has a dedicated section on endowment complaints that gives users a dummy letter to send to their provider. If you use a claims handler to take your case through your provider's complaints procedure, the Ca says it should not charge more than 10 per cent of the final settlement plus £50 for initially examining the papers.
Miss Stuttle decided to ignore the call from Endowment Refund and is continuing to write to her mortgage company.
* Endowment Refund, 02920 894 925 www.endowmentrefund.com
* Consumers' Association 020 7770 7000 www.which.co.uk
* The Financial Ombudsman Service 020 7964 1000 www.fos.org.uk
* The Law Society 020 7242 1222 www.lawsociety.org.uk
* National Solicitors' Network 020 7370 024 www.tnsn.comReuse content