Claims management firms may be the bane of legitimate direct marketers but there is no arguing that their often dubious methods are paying off after it was revealed that they have pocketed up to £5bn in commission from PPI victims.
Hardly a month goes by without at least one claims management firm being in the dock over nuisance calls and texts and few doubt that they are responsible for the vast majority of the estimated 1 billion rogue calls made each year. However, their methods have had a serious effect on legitimate telemarketing.
Until very recently the PPI claims industry was public enemy number one with the Information Commissioner’s Office, while the Claims Management Regulator has issued four fines totalling £1.6m since it was given new powers to enforce penalties on badly-behaved claims companies.
In January, it revoked the licence of a business which had made 40 million nuisance phone calls in three months. In total, it has the removed over a thousand licences from claims management companies since 2010.
The National Audit Office estimates that the companies received between £3.8bn and £5bn in commission from PPI compensation payments between April 2011 and November 2015 – 23% of the £22.2bn total compensation paid so far.
An NAO report said a “lack of awareness” that consumers could seek compensation for free has led to millions turning to claims companies, which charged an average of 28% commission.
Its report said: “The quality of claims management remains highly variable, with some companies doing little more than passing batches of consumer complaints on to the ombudsman while achieving high profit margins.”
Justin Modray, of financial guidance site Candid Money, said: ‘While the majority of claims management firms are above the law, there is a very big moral question mark over their business practice.
“They have obviously preyed on customers’ naivety and in the vast majority of cases are simply forwarding claims on [to the ombudsman] and taking a hefty cut in the process.”
A Treasury and Ministry of Justice review into claims management regulation is due to report back in April.
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