The consumer organisation Which? has accused claims management companies of lacking transparency and offering misleading advice and unfair contract terms. It said the Ministry of Justice must now act on evidence from an undercover investigation and crack down on the firms.
Which? investigators posed as people who thought they might have been mis-sold payment protection insurance and called 25 claims management companies. The organisation's damning report, out today, reveals problems with every company investigated.
Richard Lloyd, its executive director, said: "Claims management companies must clean up their act. Consumers are being misled about their chances of success and how much they'll have to pay – the last thing people need if they've already fallen victim to the PPI mis-selling scandal."
Two-thirds of the firms contacted by Which? investigators failed to advise the caller about the Financial Ombudsman Service, despite being required to do so. One even wrongly stated: "If the bank rejects your claim, there's nothing you can do."
Six firms told the caller they would get more compensation or have more chance of winning if they used a claims management company. Which? said one firm told the caller: "You have over a 90 per cent chance of claiming it through us, or under a 10 per cent chance of doing it by yourself". However, there is no proof that this is true, and claims companies are prohibited from making such assertions.
Three of the firms investigated charged upfront fees, some even asking callers for payment over the phone. In the past, claims firms charging upfront fees have been known to do little to advance the claim.
Which? also found examples of unfair contract terms. The typical fee charged by a claims company is 30 per cent of compensation received , but the definition of compensation varies. While people might assume the fee would be calculated based on the lump sum paid out to them, some firms include a reduction in future loan repayments as part of the compensation.
The result would be that clients of the firms would receive less than they expect, and in some cases even end up owing the claims company money.
Cold calling by claims companies, which can lead to pressurised sales, should be banned, said Which? Its research suggests half of those using claims firms were cold-called.
The organisation has handed its evidence to the Ministry of Justice. "We look forward to the Ministry taking swift enforcement action based on our findings," said Mr Lloyd.Reuse content