The classic example of this is in the mobile phone industry, where mis-selling of cashback contracts has been rife for some time.
Now, the truth is that such contracts are useful only to a minority of users. So the contract-selling firms have hit on a clever wheeze: sell the deal alongside a cashback offer, usually one equivalent to one year's entire monthly charges.
For example, a one-year contract at £35 a month might involve a £420 cashback, paid in stages throughout the course of the year. The only way the business model works is if you create rules that are particularly onerous when it comes to making a claim - and then apply them to the letter.
The problem is that even these tactics do not work. They may have based their business strategy on, say, a 30% to 40% successful cashback claim rate but what happens if correct claims are actually 75% or more?
In practice, what happens is this: the first cashback claims are paid out of the commission received, almost like some sort of pyramid or Ponzi scheme. Then the money runs out, at which point, after making the claims experience almost intolerable for those who submit all the correct documents, the contract seller goes bust.
The customer goes to the network provider, who says: "Tough luck matey, we have nothing to do with the cashback scheme. By the way, you still have 12 months outstanding on your contract with us."
Here, you have to ask what the regulator, Ofcom, is doing about it. After all, the dealer is effectively a multi-tied agent of the various network providers. In some cases, these firms tout themselves as the equivalent of independent advisers in relation to mobile phone contracts.
Regardless of status, if this were to have happened in the financial services industry, there is no question that the FSA would have been putting pressure on providers to make sure that the actions of their multi-ties were not disadvantaging consumers.
At the very least, the contract in its present form would have been voided. In the case of supposedly independent mobile firms, a compensation scheme of last resort would have stepped in to make good customers' losses.
Can you imagine what would happen if an adviser told a life company that he will sell its stakeholder pensions by offering consumers a full rebate of all premiums paid in, not just the commission itself, for the next 18 months and also charge no fee for the advice - and a free mobile phone worth hundreds of pounds will be thrown in? How long would his business arrangement with that provider last?
Yet in Ofcom's case, the regulator may have been stung into issuing a code of conduct on sales incentives, but there is nothing in it that requires the network provider to take responsibility for the activities of the agent dealer.
Those of us who have written about the financial services industry for years have become used to chastising providers, advisers and regulators for their respective failings. And we have been right to do so. But the truth is these failings fade into insignificance when compared to the Wild West antics of the cowboys currently infecting the mobile phones sector.
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