The Financial Conduct Authority (FCA) has issued repeated warnings about poor practice by claims management companies (CMCs), which could cost consumers thousands of pounds in fees for complaints they could handle themselves. According to consumer rights expert Martyn James, CMCs often charge between 20% and 45% of compensation, yet using them makes no difference to the outcome.
What Are Claims Management Companies?
CMCs emerged offering simplified legal services for complaints about personal injury, financial mis-selling, and housing issues, typically for a percentage of compensation or a flat fee. The industry exploded with the Payment Protection Insurance (PPI) scandal, where around 62 million policies were sold. By the compensation deadline in August 2019, £36 billion had been paid out. CMCs submitted claims en masse, charging 20% to 45% per claim, until fees were capped at 20% in 2018. This meant customers often received only 60% of their actual loss.
Do CMCs Improve Your Chances?
Detailed analysis by the FCA and the Financial Ombudsman found that using a CMC made no difference to the outcome. In some cases, it worked against customers because CMCs used generic "cut and paste" complaints, missing vital details. James notes that ombudsman schemes are designed to be free and accessible, and paying a third party does not improve results.
Why People Don't Complain Themselves
Common reasons include lack of time, perceived complexity, difficulty contacting businesses, and past negative experiences. James advises that making a complaint takes only 15-20 minutes, and regulated businesses must respond to a formal complaint within eight weeks. If unresolved, consumers can escalate to the relevant ombudsman or alternative dispute resolution (ADR) scheme for free.
The Return of CMCs with Car Finance
With billions potentially at stake in car finance claims, CMCs are resurgent. James warns against using them, urging consumers to check their credit files for old agreements and use free apps instead. "You don't need to use them to make a claim," he says. "Don't pay though!"
