Huge penalties for rogue claims management firms
Claims firms responsible for providing bad service and bombarding people with nuisance calls can be issued with financial penalties.
New powers brought in for the Claims Management Regulation (CMR) unit at the Ministry of Justice (MOJ) mean that regulated Claims Management Companies (CMCs) which break the rules can now be penalised financially, as well as the existing sanctions of having their trading licence suspended or removed.
Penalties will be based on the turnover of the company involved and the nature of the offences. For large claims firms, penalties could be up to 20 per cent of their annual turnover, meaning they could total hundreds of thousands of pounds and potentially millions in some cases.
Examples of rule breaches include:
- using information gathered by unlawful unsolicited calls and texts
- wasting people’s time and money by making spurious or unsubstantiated claims
- using misleading marketing
Justice Minister Lord Faulks said:
People should not have to have their time wasted by the unscrupulous practices of some claims firms out to make themselves a profit at others’ expense.
We are making sure they will have to pay the price themselves if they engage in this kind of behaviour.
Kevin Rousell, head of the Claims Management Regulation unit, said:
These penalties are a key measure to tackle the companies whose bad practice plagues the reputation of the claims management industry and causes serious inconvenience to the public. Reducing malpractice will also help to improve the reputation of those firms who do adhere to the rules and provide a good service to consumers.
We already take tough action against companies which break the rules, including shutting them down when necessary, but now we can make them pay them financially too.
The new penalties are the latest in a series of moves by the government to rid the industry of bad firms, which already includes appointing additional enforcement staff, banning firms from taking fees from customers before a contract has been signed and naming firms which are subject to enforcement action or under investigation. Claims firms subject to investigation or a penalty are also no longer able to surrender their licence without explicit consent from the regulator. This means that claims firms cannot simply surrender their licence to avoid enforcement action.
In April 2013, a ban was introduced on referral fees in personal injury cases. The latest figures show that the number of claims firms registered to handle personal injury claims has fallen from around 2,300 at the start of 2013, to 1,140 at the end of Sept 2014.
In addition, new conduct rules to help tackle abuses in the financial claims sector have been published. Existing requirements have been strengthened to ensure that claims are properly substantiated – and any leads firms receive through telemarketing are legally obtained.
From next month (January 2015) complaints about bad services being provided to customers by claims management companies will start to be handled by the Legal Ombudsman organisation.
Notes to editors
- Information about the Claims Management Regulation unit, including details of live investigations and enforcement action against companies
- The Financial Penalties scheme guidance
- For further information on unsolicited marketing calls and SMS texts please visit the Information Commissioner’s Office (ICO).
- Around 1,900 CMCs are licensed to provide claims management services, with around 1,100 licensed for personal injury and 900 for financial claims (some operate in more than 1 sector).
- For further information please call the MOJ press office on 020 3334 3536. Follow us @MoJpress.