Claims handling - Jail awaits for poor claims handling

Following the decision at the end of the unfair bank overdraft charges saga, new regulations protecting the consumer against unfair practices have come into force. Brokers should review their literature and procedures to ensure their compliance.

The consumer protection that has been put in place by the Unfair Trading Regulations (2008), was effective from 26 May and applies to 'commercial practices' and 'any act, omission, course of conduct, representation or commercial communication (including advertising and marketing), by a trader, which is directly connected with the promotion, sale or supply of a product to or from consumers, whether occurring before, during or after a commercial transaction in relation to a product.'

The new regulations are wider in scope than the Unfair Consumer Contract Terms Regulations (1999), which remain in force; they also consolidate and repeal 23 other pieces of legislation.

There is now a general duty not to trade unfairly, which allows the Office of Fair Trading and the Financial Services Authority to take action against unfair commercial practices, including those that do not fall into a list of banned practices. The FSA may, however, choose instead to pursue firms and individuals for breaches of its principles and for failing to treat customers fairly.

A total of 31 specific practices are now banned under the new legislation. Especially relevant to brokers is the prohibition 'requiring a consumer who wishes to claim ... to produce documents which could not reasonably be considered relevant as to whether the claim was valid, or failing systematically to respond to pertinent correspondence, in order to dissuade a consumer from exercising his contractual rights.' Although this is already contrary to ICOBS 8.1, poor claims management can now be a criminal offence.

Another banned practice deals with misleading omissions such as providing insufficient information about the product. Although the FSA Handbook already requires fair and clear financial promotions communications that are not misleading, the Financial Services and Markets Act makes misleading statements and practices a criminal offence; convictions may now be easier to obtain as the new offence for omissions does not require proof of intent.

Breaches in five areas by companies and relevant staff will attract a criminal offence, punishable by up to two years in prison or a fine of up to £5,000. These are:

- Intentional breaches of the duty not to trade unfairly

- Misleading actions

- Misleading omissions

- Aggressive practices

- Specified unfair commercial practices

Court enforcement orders can also prohibit future infringements.

Although the FSA claims that it will prefer to use its powers under the FSMA, brokers should be under no illusion that the FSA or the OFT could pursue firms and individuals under these new regulations should any commercial practices be deemed unfair. As we have seen with insider dealing cases, we expect the authorities to attribute the offence that gives them the best chance of a conviction.

James MacNish Porter, partner

David Gilinsky, solicitor, Beachcroft.