You may recall the claims management regulator was a unit of the Ministry of Justice and it regulated companies providing claims management services to England and Wales. Its regulatory responsibilities – which lie within the FCA Handbook under Conduct of Business sourcebook – passed over to the Financial Conduct Authority (FCA) on 1 April 2019, and this was recently tested in the case of SafetyNet v Impakt.

SOURCEBOOK RULES

The sourcebook rules dictate that before a claim is pursued against a firm on behalf of a customer, the claims management company (CMC) must take reasonable steps to investigate the existence and merits of a potential claim. It must also ensure that its customers/clients have provided their consent and the relevant authority for the CMC to represent them.

THE FACTS

Impakt, a CMC, was well known for raising complaints on behalf of customers against various lenders. Impakt has brought claims against lenders for providing customers with loans but had either failed to carry out adequate financial assessment of their customers or conduct proper creditworthiness checks. SafetyNet was one of the lenders Impakt pursued and brought a number of claims to SafetyNet’s door.

SafetyNet stated that it had received more than 5,330 claims from Impakt and 2,871 data subject access requests and, out of those investigated, it accepted 247 claims in April 2021 due to the FOS’s eight weeks deadline in dealing with complaints. Due to time constraints, SafetyNet failed to investigate claims in-depth. Resulting in pay outs of approximately £100,000.

In 2022, SafetyNet brought a claim against Impakt alleging huge losses – in the region £440,000 – due to the volume of complaints Impakt lodged with the business. This resulted in wrongful pay-outs to customers, loss of business plus the expense of training staff to manage the volume of such complaints. It also alleged that Impakt had other failings, including the failure to assess and investigate the claims properly, the fact that many of the claims that were submitted had insufficient or no oversight and some claims were lodged without the customers’ consent which led to breaches of the Conduct of Business rules. Impakt rejected these allegations.

Impakt claimed that SafetyNet could have asked for an extension of time to investigate the complaints if needed, which it failed to do. It therefore claimed that it was entirely down to SatefyNet and its own procedures that inevitably caused the losses.

Impakt has requested a declaration so that it can continue to pursue the outstanding claims. It has put in a claim for damages of approx. £100,000 since SafetyNet has paid out customers directly and has not received the fee share Impakt has agreed with its customers. This case is with the High Court to decide on the outcome and the result is eagerly awaited by lenders and, no doubt, CMCs.

ADMINISTRATION FOR SAFETYNET

However, the claimant SafetyNet went into administration on 9 January 2023. As the matter is still with the court, the company may not have sufficient funds to continue with the case. The administrator has warned that “there is very little prospect” of any money being available for refunds or compensation. We shall await the final report of the administrator’s proposal over the coming weeks.

IMPLICATIONS

If the case is to proceed and goes in favour of the lender, it will give some fallback on any spurious claims which some CMCs and law firms might bring against lenders. In the meantime, lenders are urged to ensure that they have adequate processes and resource in place to manage such claims. This is particularly important in light of the new Consumer Duty regime ensuring firms support their customers and ensure good outcomes in the whole customer financial journey and to manage key customer harms in particular affordability and forbearance.

SOME GOOD NEWS

As well as firms looking to adapt the new Consumer Duty regime into their businesses, there might be some comfort to know that at the beginning of this year (5 January 2023) the FCA issued a further ‘Dear Portfolio’ letter to all regulated CMCs, setting out the FCA’s supervision strategy over the next couple of years including looking into the regulation of CMCs. This follows its earlier letter sent to CMCs in October 2020. This is in light of uncovering a number of issues lenders have experienced and raised about poor practices of CMCs over time. The letter also outlines its expectations of CMCs including how to mitigate key risks.

The FCA, liaising with the regulators (FOS and SRA) – particularly on the malpractice – may go some way to improve the way CMCs operate with firms in the future.