COVER FEATURE
Temptation...
The mortgage industry is deeply divided when it comes to
claims management but brokers may not be able to resist
the lure of the income it could provide for much longer
NATALIE MARTIN, ONLINE EDITOR
18
The industry’s love-hate relationship with claims management
firms has been highlighted in recent months as brokers have started
to hit lenders where it hurts – in their pockets.
With claims firms recruiting mortgage brokers on a weekly
basis, some brokers risk going from being lenders’ best friends to
their worst enemies. Traditionally, brokers have jumped when
lenders say jump and then sat obediently waiting for the next round
of commissions. But when times are tough and commissions start
to dry up the relationship is brought into question.
Some brokers are starting to question whether their loyalties
should remain with lenders that are failing to deliver. And with the
Ministry of Justice receiving some 150 applications a month from
companies wishing to become claims management firms, the
dilemma for brokers does not look set to disappear anytime soon.
The MoJ is responsible for issuing claims firms with licences and
has already authorised around 800 businesses to provide claims
management services in the financial services sector.
“It does not surprise me that the MoJ is receiving this number
of applications,” says Mal McConechy, who launched Liverpoolbased
Loan Resolutions last year, specialising in complaints relating
to the Consumer Credit Act. “In a few years’ time everyone will know
somebody who has made a claim.”
But he says a lot of firms are jumping on the bandwagon
thinking they can make a profit from claims management and
worries whether the MoJ will be able to cope with demand.
“One of my concerns about the MoJ getting all these applications
is that it will make it hard for it to police the sector,” he says.
Before working in claims management McConechy was a
director at network Home of Choice – ironic considering that a
number of networks have shunned claims firms recently.
Despite the introduction of
regulation in the sector in 2007
by the Ministry of Justice, the
Association of Mortgage
Intermediaries and its members
still have concerns about the operations of
some claims management companies and
whether the services such firms provide bring
tangible benefits to customers.
In the current climate vulnerable customers
need solutions to their problems so prompt
and fair handling of complaints is vital, not only
as a fundamental part of the Financial Services
Authority’s regulatory regime but also as a way
of protecting the reputation of – and
confidence in – companies in the financial
sector generally.
Therefore, it is important for regulated
firms to be aware of the sort of issues that can
arise when dealing with complaints.
The concern for us and our members is the
regulatory gap which allows claims firms to
provide quasi-legal or financial advice with
limited checks and controls. Concerns about
the possible risks they pose to customers –
and, to a certain extent, brokers – has
“I spent a lot of years in the
mortgage market but now I doubt I
will be able to find a job working in the
sector because of the way the market is,”
says McConechy. “Claims management is a
market I can make money in.”
It has been brought into question whether
brokers should take from lenders with one hand and make
claims against them with the other, with some accusing brokers that
enter the sector of biting the hand that feeds them.
Brokers’ revenues are limited in the current climate and many
are finding the lure of claims management firms too much to resist
but McConechy believes claims firms will never become part of a
brokers’ mainstream offerings until the scepticism around them has
disappeared.
“I cannot envisage the day when lenders accept claims firms,” he
says. “The problem is that successful cases are never made public.
A lot of individuals have won claims against lenders and had their
debts wiped off but these have not been publicised. When more
consumers start winning claims they will grow in popularity – many
will hear from friends about how they have been successful.”
It has not escaped the MoJ’s attention that some claims firms are
coming down hard on lenders for deceiving the public while
themselves not sticking by the rules. The MoJ has issued guidance
to firms and warned that misleading statements in advertisements
that make dubious claims or leave out important information might
breach consumer protection regulations.
Image is everything and claims firms do not always have the best
public profile. McConechy says it does not help that these firms
operate in various ways and some charge extortionate upfront fees.
Avoiding the regulatory gap with claims management
generated a debate over the need for a
regulatory structure that assesses the
competence of claims firms, authorises them
and monitors their conduct.
With the downturn in the economic climate
we have seen a marked increase in the number
of contacts made by claims firms with the
broker community. Claims companies are now
seeking to recruit advisers, offering training
in complaints handling or to make them
franchisees in MoJ-authorised firms or
introducers. While broker firms may wish to
undertake training in any number of areas as
MORTGAGE STRATEGY April 6, 2009
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