The government is taking action to clampdown on rogue claims management companies (CMCs) which provide bad services and are responsible for people being bombarded with nuisance calls.
A call for evidence has been launched today for a fundamental independent review of the way claims firms are regulated.
Consumers, regulators, banks and insurers remain concerned that some CMCs continue to fuel speculative claims and create a significant social nuisance through unsolicited calls and texts, misleading marketing and high charges.
HM Treasury and the Ministry of Justice (MOJ) are looking to build on the work of the Claims Management Regulator (CMR) by taking forward a review announced in the Summer Budget.
Justice Minister Lord Faulks said:
The government is taking action to make sure people aren’t having their time wasted or being taken advantage of by the greedy practices of some firms.
We want to be certain that we are doing all we can to get consumers a fairer deal and rid the industry of rogue behaviour.
The review is being led by Carol Brady, chairman of the Chartered Trading Standard Institutes board, who has begun consulting key stakeholders including consumer groups about what more can be done. She is seeking evidence on how the claims management market is working, what improvements can be delivered through changes to regulation, and where other solutions may be required.
This evidence will be used to assess the powers and resources required for a strengthened regulatory regime and will consider what other reforms may be necessary. The review is due to be completed by early 2016.
As announced in the Summer Budget in July, proposals are also being developed to cap the fees that regulated CMCs can charge their clients in financial claims such as PPI to ensure that CMCs cannot make excessive profits for very little risk. The aim is to help ensure consumers that decide to use a CMC receive the vast majority of any compensation paid and are not taken advantage of by those companies that may add very little to the claims process.
A consultation on proposals will be published later this year. It is expected to include capping the amount CMCs can charge clients in winning cases – set at a rate for PPI and similar claims that reflects a reasonable profit level for the risks CMCs are taking – and a ban on upfront fees. A cap on charges should help to reduce incentives for CMCs to collect marketing leads and as a result reduce the vast number of speculative calls.
Economic Secretary to the Treasury, Harriett Baldwin said:
The government is clear - CMCs must be properly regulated. That is why we announced a wholesale review of the industry at the Summer Budget. We will not tolerate rogue behaviour.
That is why today we are looking at how to ensure that consumers receive all of the money they are owed by capping the amount claims management companies can charge and cracking down on nuisance calls.
These measures follow recent reforms which have included reinforcing the regulator’s enforcement tools with a new power to impose financial penalties on CMCs, and naming firms which are under investigation or subject to recent enforcement action.
In August 2015 the CMR issued its first fine – a £220,000 charge against a CMC making millions of cold calls.
Since 2010 the regulator has removed the licences from over a thousand firms, including 300 last year.
Notes to editors
- Evidence and comments for the review can now be submitted
- The government has taken a number of steps in recent year to tackle rogue claims management companies including:
- Banning ‘referral fees’ paid between lawyers, insurers, claims firms and others for profitable claims – which have driven the growth of compensation culture
- Banning claims management companies from offering cash incentives or gifts to people who bring them claims. Recommend a friend deals also banned, along with contracts agreed only over the phone
- Changing the law so that regulated claims companies which breach Claims Management Regulation rules around cold-calling and client service will be liable for fines of hundreds of thousands of pounds (as well as the existing sanctions of being suspended or closed down)
3.Find out further information about the Claims Management Regulation unit.
4.View the latest quarterly Claims Management Regulation Unit enforcement update.
5.For further information please call the Ministry of Justice press office on 020 3334 3536. Follow us @MoJpress