Claims Management Regulation Impact of Regulation update

[Amethyst]

http://www.claimsregulation.gov.uk/u...pdate_2009.pdf

Claims Management Regulation Impact of Regulation update

[Amethyst]

Re: Claims Management Regulation Impact of Regulation update

Consumer credit agreement claims
20. Over the last year a major new market – in respect of the enforceability of consumer credit agreements – has emerged. A number of businesses have argued that a high proportion of consumer credit contracts are deficient and therefore not enforceable. Some have sought to persuade consumers that their debts can be written off in exchange for a fee.
21. The collective response from the various regulators has so far not been sufficient. This partly stems from the number of regulators and other agencies involved. The succession of warnings by the Claims Management Regulator, the Office of Fair Trading and the Solicitors Regulation Authority have served a useful purpose but those engaged in serious malpractice are less likely to be influenced by warnings, but rather are influenced by enforcement action.
22. This issue needs to be tacked more urgently and to do so is likely to require significant additional resources, and in relation to the Claims Management Regulator beyond what is currently available. The SRA and the OFT both have a direct responsibility in this area. Solicitors are not only handling claims
Impact of Regulation – Assessment – Update
passed on by claims management businesses but are also seeking claims directly, and the OFT has responsibility for regulating consumer credit and debt counselling and for consumer protection generally. A joint approach by these three bodies, with one clearly in the lead, accountable and providing the necessary resources, is needed.

[Amethyst]

Re: Claims Management Regulation Impact of Regulation update

15. Consumer credit agreement claims
15.1 During the second half of 2008 a major new area of claims management activity emerged in the form of the alleged unenforceability of consumer credit agreements. This area of business is capable of bringing benefit to some consumers, but also of causing damage to others. It also causes problems to the businesses that have provided consumer credit loans. It is, therefore, sensible to analyse why the market developed, the regulatory response and the impact of regulation. However, it should be noted at the outset that malpractice in this area is very different from that for which the Claims Management Regulation regime was designed and that lead responsibility properly rests with OFT.
The Issue
15.2 The Consumer Credit Act 1974 is worded such that if lenders do not comply with its provisions then they are unable to enforce repayment of the loan. It can be argued that for purely technical reasons some consumer credit agreements are not enforceable. Some businesses are seeking to help people seek relief from the debts on the grounds that the documentation is not in the prescribed form. The consumer credit industry disputes both the legal arguments and the implications of the legislation. It believes that there is a misconception about the nature of the documentation requirements and claims that in practice there have been very few cases where credit agreements have been found by the Court to be unenforceable, although a number have been settled out of court.
15.3 Given that the Consumer Credit Act has been in place since 1974, it is necessary to ask why the issue suddenly arose in 2008. The reasons are a combination of the climate being created in which financial products are alleged to have been mis-sold thus creating a demand for compensation, claims management businesses seeking to compensate for the decline in activity in respect of endowment claims, an increasing number of claims in respect of payment protection insurance sold on the back of consumer credit agreements, and businesses in the property market seeking new income streams to compensate for the decline in mortgage business. Paradoxically, steps taken to modify the overly-strict requirements in the 1974 Act may have contributed to the problem. The Consumer Credit Act 2006, implemented in 2007, exposed the quite rigid requirements on creditors when drawing up loan agreements which the courts must deem unenforceable if not complied with under the 1974 Act.
15.4 Once the market began to develop, it mushroomed as more businesses jumped on the bandwagon. Some quite large businesses in the market use agents (not always with a proper agency agreement) and in some cases those
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agents decided to set up their own businesses, seeing the opportunity to make even more money.
15.5 Whatever the merits of the arguments, by the autumn of 2008 the business was in full swing with widespread advertising, much of it misleading, and many consumers either directly, through claims management companies or through solicitors beginning the process of seeking to have their loans declared unenforceable by making an information request to their lenders.
The Issue for Lenders
15.6 Lenders have naturally been concerned about these developments. They have faced a massive increase in the number of requests for information followed up by letters stating that the agreement is unenforceable and asking for the debt to be written off. Lenders complain that generally they receive no more than standard letters which show a less than complete understanding of the legal position, and that requests for more specific information are often met by a repeat of the allegation that the agreement is unenforceable. However, as in other financial services sectors some product providers have had a cavalier attitude to compliance with the legislation and as yet there is probably considerable denial in the industry about whether there has really been non-compliance. Significantly, the information and presentation of information about credit cards and loan statements has improved markedly in the last year or so perhaps partly prompted by the claims for compensation.
Impact on Consumers
15.7 For some consumers, the development of this sector of the market is welcome and gives them an opportunity to secure relief from a debt which they should never have incurred in the first place, because the credit agreement should never have been entered into and was not compliant with regulations then in force. There are probably cases where PPI was mis-sold on the back of a credit agreement which itself was mis-sold through the consumer being misled as to the nature of the agreement. However, in order to pursue a particular case a claims management company has to do a great deal of work to analyse whether the loan agreement is unenforceable, before taking action directly or through a solicitor to seek to have the loan written off. A number of companies have entered this market having done all the necessary research and using the appropriate expert legal advice and a panel of suitably qualified solicitors.
15.8 However, in addition to this desirable development there is a tail of business which clearly is less desirable. A major concern has been a huge volume of advertising, mainly on the internet, which has given the impression to people that their credit agreements are unenforceable. Among the misleading
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statements highlighted in a Claims Management Regulator release in January 2009 were –
• “80% of credit agreements are unenforceable”. Fifty million credit agreements are created every year, at least 25 million are unenforceable”.
• “We are currently handling over 5,000 cases!” “We are currently managing £30 m of claims!”
• “We will get your credit cards written off within six weeks!” “Fast results guaranteed”.
• “We have a 100% success rate”. “A positive outcome is guaranteed”.
• “We can write off all your outstanding debt, all previous payments could be returned, and you could keep any goods purchased”.
I5.9 Although overt misleading advertising has now largely, although not wholly, been dealt with, misleading information is still given in other ways. It is probable that even more outrageous claims have been made in telephone sales calls.
15.10 For some consumers these unreasonable expectations have been further compounded by advice given by a few companies that consumers can stop making payments, and even that they should immediately spend up to the maximum on their credit card because the agreement would not be enforceable (including paying a fee to the claims management company through the credit card). An even more distinct and dangerous variation has been for businesses to purport to take an assignment of the debt, something which is legally not possible. A number of businesses have also charged quite substantial up-front fees to consumers.
15.11 The business models used by claims companies vary. The “good” model, outlined earlier in this section, is for the claims company to do a comprehensive assessment of whether the agreement is enforceable and if it is found to be enforceable then passing it on to a solicitor to take the appropriate action. However, there appear to be a number of other business models –
• Taking a significant up-front fee with the promise of a full refund less an administration cost if the agreement is found to be enforceable. The company then does little more than take in the advance fee, do virtually no work and then pocket the administration fee leaving the consumer feeling that he may well have got a good deal.
• Bombarding the lender with information requests but not then engaging properly by responding to requests for more specific information. The next stage is simply to assert that the agreement is unenforceable.
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• Going straight to the Ombudsman, or threatening to do so, effectively using the levy imposed by the Ombudsman on a per-case basis to persuade the lender to accept that the agreement is unenforceable.
15.12 It also seems to be the case that some claims management companies have attracted a large number of cases but do not have arrangements in place with solicitors to pursue the cases.
15.13 There is scope here for more direct consumer detriment significantly greater than for any other claims management activity. There are three main areas of detriment –
• Contrary to the expectation given to the consumer, the lender will enforce the loan, including taking possession of an asset in the case of hire purchase or leasing arrangements, or taking court action to recover the debt.
• Registering the default with the credit reference agencies such that the borrower will find it difficult, if not impossible, to obtain credit in the future.
• Many people, including some with limited income or debt problems, have paid significant up-front fees with the likelihood of them never receiving the service that they have paid for.
The third area is of lesser impact than the other two, but may well be combined with them.
The Regulatory Regime
15.14 This particular issue, as with so many others, does not fall clearly within the ambit of a single regulator. Rather, there are no fewer than four relevant regulators and three other agencies that are significant –
• The Office of Fair Trading is responsible for the licensing of businesses that provide consumer credit and for regulating debt counselling.
• The Claims Management Regulator is responsible for regulating businesses that provide claims management services, some of which are or should be also authorised by the OFT in respect of consumer credit or debt counselling services.
• The Solicitors Regulation Authority is responsible for regulating solicitors including in respect of activities which done by businesses other than solicitors would require authorisation under the Compensation Act.
• The Financial Services Authority regulates businesses that provide consumer loans and requires all authorised regulated businesses to comply with its rules on dispute resolution.
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• The Financial Ombudsman Service hears complaints against businesses regulated by the FSA. The way that it charges, on a per-case basis, together with the procedures it follows, form part of the regulatory framework.
• The Department for Business, Innovation and Skills is responsible for the consumer credit legislation.
• The Courts are responsible for interpreting the law and dealing with specific cases.
Regulatory Action
15.15 Regulators have taken a number of actions to deal with emerging problems in this sector, largely announcements aimed primarily at consumers and businesses. In August 2008 a first “consumer alert” was published by the OFT and the Claims Management Regulator. On 6 January 2009 the Claims Management Regulator issued guidance on marketing and advertising claims management services in respect of unenforceable credit agreements. It noted a list of statements that were causing concern in advertising literature and warned businesses that failure to comply with the rules on this matter could lead to enforcement action. In February 2009 there was a joint Claims Management Regulator/OFT press release publicising the January guidance. In May 2009 the SRA warned solicitors not to accept business from introducers which mislead consumers about the prospects of getting loans, credit cards and other debts written-off. The SRA reported that it was currently investigating ten solicitors firms and commented that it was liaising closely with the Ministry of Justice.
15.16 In addition to this activity, the Claims Management Regulator has also been taking some enforcement action. Most of the misleading advertising, particularly on websites, has now been removed, although a quick web-search reveals that quite a lot remains. A number of businesses have been asked to change their practices and it is understood that stronger enforcement action has been initiated in some cases.
The Impact of Regulation
15.17 The collective response from the various regulators has so far not been sufficient. This partly stems from the number of regulators and other agencies involved, but this is a matter to be sorted out within Government. Consumers are entitled to expect a joined-up response.
15.18. The succession of warnings by the Claims Management Regulator, the Office of Fair Trading and the Solicitors Regulation Authority have served a useful purpose but those engaged in serious malpractice are less likely to be influenced by warnings but rather are influenced by enforcement action.
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15.19 While some enforcement action has been taken, particularly in respect of misleading advertising, much more needs to done in the circumstances. Removing misleading advertising from websites is desirable but not nearly sufficient if sales calls are even more misleading. At present, there seems a real danger that a number of consumers have been led to believe that their consumer credit debts are unenforceable when they probably are enforceable, that unknown to them they are putting themselves in a position whereby they may find it more difficult to obtain credit in the future and they may well have parted with up to £500 in an up-front fee on the basis of misrepresentation at what could be achieved.
15.20 This issue needs to be tacked more urgently and to do so is likely to require significant additional resources, and in relation to the Claims Management Regulator beyond what is currently available. The SRA and the OFT both have a direct responsibility in this area. Solicitors are not only handling claims passed on by claims management businesses but are also seeking claims directly, and the OFT has responsibility for regulating consumer credit and debt counselling and for consumer protection generally. A joint approach by these three bodies, with one clearly in the lead, accountable and providing the necessary resources is needed.

[Amethyst]

Re: Claims Management Regulation Impact of Regulation update

Apologies for bombarding you with info - but this report is absolutely blinding If you get time to read the extracts I have posted - do !

The CMCs are concerned....whether they will pull their socks up to sort things before they get pounced on, or whether they run off into the sunset with peoples hard earned remains to be seen.


They also published their Annual Review which I am reading now so expect for cuffuffle (figuresssss yum) http://www.claimsregulation.gov.uk/u...%202008-09.pdf

Turnover increased by £20M in the last year. 161% rise in number of authorised businesses (for financial services claims companies)

The last Review noted the decrease in turnover within this sector from 2007 to 2008, with the most probable reasons being the effect of the OFT test case on unfair bank charges placing a hold on most claims, together with the winding down of the endowment claims market. Whilst these effects are still evident, the growth of this sector since the last Review is noticeable, and is most likely attributed to the emergence of unenforceable consumer credit agreement (UCCA) claims, and the growth of claims made for payment protection insurance (PPI).

Useful case study for those people who have had nothing back from CMCs since paying/signing up

Unfair contract term: A consumer paid a business for a credit card debt / unfair bank charges claim. When he heard nothing, they admitted they had lost his paperwork and asked him to resubmit it. He was understandably reluctant to trust the business and refused. The business relied on a contractual term to keep £250 of their £1000 fee. On advice from us, the business repaid the consumer in full.