You’ll have no doubt heard their adverts on the radio or seen them on television. Claims companies that will get back funds for you, funds that you were misled were necessary and required by financial institutions years ago. It’s money you you did not have to pay for insurance that often would not have paid your claim if you were self employed or over a certain age as well as many more covenants. You were led to believe you were required to hand over that money, however. We are, of course, talking about PPI.
You may have even had a phone call from one of these payment protection insurance claim companies. They’ll do the leg work for you, you need do nothing yourself. They find out if you paid out unnecessarily for PPI, apply for the funds to be returned and the cash just turns up, however you may well owe them 30% or so in commission and you’re done. Nice and easy.
In finance these companies are known as CMCs or claims management companies. PPI has been big business of late and these companies have made some serious hay while the sun has shone. That’s all changing, though. In part due to the fact that the deadline for PPI applications is rapidly approaching. The Financial Conduct Authority (FCA) has set a hard deadline of the 29th August 2019 for final PPI claims to be made. As of Friday 30th, it’ll be too late. You can no longer apply. The money is lost. So CMCs know they’ve only got a year to wring out as much work as possible from the whole PPI debacle...
That’s not to say that these CMCs are all in huge trouble as of twelve months’ time. Not at all. While many may currently focus their efforts on payments protection insurance, there are still plenty of other things they can do for their clients. Compensation, restitution, repayment or settlements for loss or damage aren’t solely the domain of PPI.
CMCs are worried, though. Not only is the PPI deadline looming, but their entire sector is coming under some rather intense scrutiny by the UK government. After some concern led to the independent ‘Brady Review’, various recommendations were made in order to regulate the sector better and cut down on misconduct. Soon, The Financial Guidance and Claims Act 2018 (FGCA) was born. It’s a piece of legislation designed to protect the consumer and cut down on impropriety. But it will squeeze CMCs quite considerably and put real pressure on them. That pressure is already beginning to show on some smaller claims companies.
Many claims management companies are now seriously concerned. The FGCA, along with other factors, is making life very difficult indeed. In fact, the threat of going out of business loom for some CMCs.
Here are just some of the main concerns they have:
- Wages - Ever increasing staff wages cut into profits. The processing of PPI claims is very staff intensive, so any increase in minimum wage (however slight) or increase in the cost of pension contributions hits the CMC’s bottom line hard.
- Commission fees - There is now a cap on the fees that they can charge customers. They may now only charge up to 20% of the overall claim (plus VAT). For companies charge in excess of 25%/30%, that’s quite a sizeable hit.
- Upfront fees - Firms can no longer require applicants to pay upfront fees. The fallout of this is an immediate cashflow issue, given there is an instant halt to money coming in in such fees.
- Waiting for payment - Claims take a while to be processed. It needs to be identified first. Then the bank is contacted. They have up to two months to reply. Then payment needs to be agreed and then arranged and followed up on. Or chased if not paid. If the claim is rejected by the bank, it needs to be referred to the Ombudsman, then the claim can take up to two years due to the backlog of PPI-based complaints they have. It can be a long and drawn-out affair.
- Complaints - There exists a lack of understanding by some clients/applicants which can result in them complaining about the claims company to the Ombudsman. Each and every complaint lodged with them costs the company £400 in fees. Of course, this is an avoidable issue, but it’s still very commonplace.
Our advice to consumers? Be careful which PPI claims company you instruct because the FCA is squeezing them and many CMCs are in real trouble at the moment. Do your due diligence to ensure that the company you work with aren't about to become insolvent, as this will likely affect your PPI claim. Especially given that the clock is ticking on how long you have left to claim back PPI...
Failing that you can always look into making the claim yourself. It’s a surprisingly straightforward process.