Complaint Handling - Claims Management Companies
The purpose of this material is to respond to the urgent need to set out the FSA's position on Claims Management Companies. This material is not intended to be general guidance and is not of continuing effect.
There has been recent comment in the media about complaints relating to the sale of mortgage endowment policies and the role of third parties in pursuing complaints with the firms that sold such policies. The FSA does not regulate third parties that pursue complaints on consumers' behalf, although we do regulate some of these agencies where they conduct regulated activities. We have set out below the regulatory position for FSA-authorised firms so as to clarify what is required of them by our rules. The following is what we would expect of firms that are applying the relevant rules.
Consumers have access to complaints handling procedures that are free, and designed to be easy for them to use – and firms must tell consumers how to use them. As we stated in our paper 'Mortgage endowments: Progress report and next steps', we require firms to have robust complaint handling procedures and firms are expected to treat their customers fairly. If a consumer is unhappy with the outcome of a firm's review of their complaint, they can refer the complaint to the Financial Ombudsman Service (FOS) which provides a free, effective and straightforward process.
It is understandable that firms may wish to encourage consumers to make complaints directly to them as part of their ongoing relationship. However, some consumers may choose to use the services of a third party such as a claims management company. We believe it is important that the consumer makes an informed choice in these circumstances – i.e. understands that there are likely to be costs involved in using a third party, and what those costs are.
Our rules provide that a complaint may be brought by a third party on a consumer's behalf. DISP 1 concerns complaint handling procedures for firms, and DISP 1.3.1R states:
"Effective and transparent procedures for the reasonable and prompt handling of complaints must be established, implemented and maintained".
In addition, DISP 2.4 sets out who can refer a complaint to the FOS, and DISP 2.4.16R states:
"A complaint may be brought on behalf of an eligible complainant, or a deceased person who would have been an eligible complainant, by a person authorised by the eligible complainant or authorised by law."
Effective and transparent internal complaint handling procedures include procedures for firms to deal with third parties authorised by the consumer. We understand that good practice in this area would mean both accepting and handling complaints via third parties, and corresponding with such third parties as if they were the consumer, although this does not preclude firms from sending copies of correspondence to the consumer.
We are aware that some firms seek direct dealings with a consumer after a third party has been authorised by the consumer. Firms and consumers should be aware that there may be contractual issues and obligations between the consumer and the third-party, should the consumer then choose to deal directly with the firm. Firms should take care to avoid inducing the consumer to breach his/her contract with a third party.
We are also aware that some firms pay any compensation due, directly to the consumer rather than to the third party. In our view either route is responsible and adequate, but subject to any contractual restrictions between the parties concerned.
For more information on making a complaint relating to the sale of mortgage endowment policies please visit the Endowment Mortgages page on the consumer website.
