14Feb

The Ministry of Justice (MoJ) has taken action against a number of claims management companies (CMCs) in 2012, and companies in this sector can expect an increased regulatory burden in 2013. The MoJ regulates CMCs who practise in areas such as personal injury claims and compensation for mis-sold payment protection insurance (PPI). The claims management sector has seen considerable growth in recent years, and therefore increased scrutiny of companies engaged in these activities must be expected. However, the Government has so far resisted calls for CMCs to be regulated by the new Financial Conduct Authority.

Between April and November 2012, 209 CMCs had their authorisation withdrawn by the MoJ, while three companies were suspended and another 140 issued with warnings. This takes the total number of companies that closed as a result of MoJ action to over 900 in the last five years.

In the same year, 539 CMCs ceased trading voluntarily.

Common areas of concern for the MoJ include companies not being transparent regarding their fees, taking upfront fees when they know there is little or no chance of a successful claim being made, and sending unsolicited marketing messages and texts. In November 2008, the two owners of Tetrus Telecoms were fined £440,000 after the Information Commissioner’s Office (ICO) found that it had sent as many as 840,000 illegal text messages a day regarding re-claiming PPI or claiming for accidents. The ICO is also pursuing legal action against Tetrus for alleged breaches of the Data Protection Act.

Justice minister Helen Grant said: “We will not tolerate claims management companies that rip off consumers and flout the rules.

“We have introduced a number of new measures in the past year which will mean consumers are much better protected and which offer a route of complaint and compensation while sending a clear message to the minority who break the rules their tactics will not be tolerated.”

Head of the Claims Management Regulation Unit at the MoJ, Kevin Rousell, said: ‘We will continue to tackle bad practices by claims management companies and take action against those who break the rules.”

In 2013, CMCs can expect to have to draw up a written agreement before taking any fees from their clients. Previously, many CMCs had relied simply on oral disclosure. Consumer complaints about CMCs can also be referred to the Legal Ombudsman from April 2013, which can order companies to pay compensation of up to £30,000.

Chris Lawrenson, head of legal services at the Building Societies Association, welcomed the Legal Ombudsman move, by saying: “The matter is urgent as it is clear that the CMCs operating in the PPI sector are generating by far the most consumer complaints, 74% according the Ministry of Justice.

“Worse still, the vast majority of these complaints are made against just 15-20 firms out of the 1,000 plus authorised in the financial services category.”