Claims Management Companies on the Hook for New Fees as Complaints Rise

The Financial Ombudsman Service in the UK is conducting an investigation into the feasibility of levying fees on claims management companies due to a notable increase in complaints about motor finance, despite their relatively low success rate. Over the three months leading up to September, complaints about motor finance more than doubled, with professional representatives, also known as claims management companies, being the primary driver behind this surge.

A significant revelation from the Financial Ombudsman Service was that the uphold rate for motor finance cases brought forward by professional representatives was just 8 per cent, in contrast to a 42 per cent uphold rate for cases brought directly by consumers within the same category. James Dipple-Johnstone, the deputy chief ombudsman at the Financial Ombudsman, underscored this imbalance by emphasizing that “the vast majority of motor finance complaints are now brought by professional representatives” and that despite the presence of both good and bad practices, their low uphold rate indicates the need for representatives to enhance their understanding of case merits before advising their clients.

In consideration of these developments, the Financial Ombudsman has initiated a consultation on potential new powers to impose charges on relevant professional representatives for submitting claims. Concurrently, it was declared that the fee imposed on lenders for submitted cases is set to be reduced by £100 per case.

Dave Briggs, the Managing Director of Tandem Motor Finance, expressed his endorsement for the Ombudsman’s data-driven proposal, deeming it a positive step. He underscored the importance of amicably resolving customer complaints and the necessity of providing a free resolution option when such amicable resolutions become challenging. Briggs also acknowledged the potential role of professional representatives in resolving financial disputes but voiced concerns about the scale of activity in comparison to its current success levels, particularly within the motor finance sector.

Briggs further advocated for the implementation of a charging regime for professional service companies at a level that promotes more focused activity. He emphasized the benefits of such a move for consumers in providing a realistic indication of the likelihood of their case being upheld successfully. This, in turn, could potentially lead to a reduction in the number of cases submitted, subsequently allowing the Ombudsman to expedite response times on the worthy instances.

It is evident that the landscape of claims management companies is poised for potential changes as the Financial Ombudsman takes steps to address the surge in complaints related to motor finance. This trend may have significant implications for both professional representatives and consumers and signals a heightened focus on improving the standards of the claims management industry. The potential introduction of fees for claims management companies may also serve as a deterrent for submitting cases without substantial merit, subsequently streamlining the claims process and ensuring that the Ombudsman can efficiently handle genuine complaints.