Press release

Hundreds of claims firms close following fee ban

This news article was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Hundreds of the firms which bombard the public with adverts for profitable compensation claims have left the industry following changes to the law.

The latest figures show that the number of claims management companies registered to handle personal injury claims has fallen from 2,435 in March 2012 to 1,700 in June 2013.

The sharp decline follows changes to the law around no-win, no-fee deals passed by the Government in 2012 and brought into effect in April 2013.

These included a ban on the “referral fees” which used to be paid between no-win, no-fee lawyers, claims firms and others for profitable claims.

The figures were included in today’s annual report of the Claims Management Regulation unit, based at the Ministry of Justice, which is responsible for regulating the companies which advertise for claims and handle them on behalf of people pursuing compensation for injuries or other issues, like mis-sold insurance.

The unit has been enforcing the ban since April, visiting more than 450 companies in England and Wales – leading to further investigation of 141, action taken against seven and 13 surrendering their licence to trade. The crackdown also led to four firms being discovered trading without authorisation – which have now been stopped.

Justice Minister Helen Grant said:

‘We have taken strong action to rein in the rogue firms which have gathered in this sector and the impact is now starting to show.

‘Ending these fees which fuelled a growing compensation culture has been an important step to reducing the cost of living for ordinary people - who have ultimately been footing the bill for them through their insurance premiums.’

Kevin Rousell, head of the Claims Management Regulation unit, said:

‘It is our absolute priority to protect customers and we are making certain that firms are following the rules at a time of major change for the Claims Management industry.

‘We do not tolerate bad practice and continue to take action against companies which break the rules, including removing their licence to trade. We shut down more than 200 last year.’

The annual report also reveals the important work of the unit tackling bad practice across the claims management sector, including with the firms which handle PPI claims. In 2012/13 the regulator cancelled the trading licences of 211 companies, audited 129 and issued formal warnings to 285. It has now shut down more than 900 firms since being set up in 2007.

Tougher rules to further protect customers taking on the services of claims management companies were introduced this year. These include:

  • A ban on firms taking fees from customers before a written contract has been agreed and signed. They can no longer take money based on a phone agreement.
  • A ban on adverts which offer potential customers cash or gifts for bringing profitable claims to companies.
  • An order that firms must inform clients within 14 days if enforcement action has been taken against them.

The changes have been designed to drive malpractice out of the industry and improve the reputation for the vast majority of CMCs that do follow the rules. Further action is also planned around PPI claims, including:

  • More resources to ensure investigation and enforcement action of PPI claims management companies can be taken quickly.
  • Increased intelligence sharing with the Financial Ombudsman Service (FOS) and Financial Conduct Authority (FCA), and amendments to rules to address shared issues.

The Claims Management Regulation unit has also been supporting the Information Commissioners’ Office with its work to stop those who break the law with unsolicited calls and texts to advertise for business.

The unit has also made more information available to the public about firms, including an online tool so they can check whether enforcement action has been taken against a company, or is ongoing.

Notes to editors:

  1. View the 2012/13 Claims Management Regulation Annual Report.
  2. Around 2,500 claims management companies are licensed to provide claims management services, with around 1,700 licensed for personal injury and 1,100 for financial claims (some operate in more than one sector).
  3. Find out further information about the Claims Management Regulation Unit.
  4. For further information on unsolicited marketing calls and SMS texts please visit the Information Commissioner’s Office (ICO).
  5. For further information please call the Ministry of Justice press office on 020 3334 3536. Follow us @MoJpress.