From 8 July 2013, claims management companies (CMCs) in the UK will be subject to new regulatory requirements. Consumer groups have criticised CMCs in the past over matters such as: claims made in their advertising; the lack of transparency over the fees charged; and cold calling and texting of members of the public.

The most far-reaching change will be a ban on verbal contracts, which many CMCs have relied on previously. Instead, a formal written contract will need to be drawn up by the firm, and the terms of the contract will need to be agreed by the client before any fees can be taken. However, the move falls short of the outright ban on charging up-front fees which some consumer groups had demanded.

Another new obligation is for the company to alert all their customers within 14 days if they are subject to regulatory enforcement action.  260 CMCs had their authorisation removed by the Claims Management Regulator between April 2011 and March 2012. Between April and November 2012, a further 209 firms lost their licences, while three firms were suspended and 140 received warnings.

Companies must also describe themselves as being regulated by the Claims Management Regulator, instead of by the government department the Ministry of Justice (MoJ). Although the Claims Management Regulator is part of the MoJ, it has been suggested that the old wording could amount to an inference that the government has endorsed the firm.

Head of the Claims Management Regulator, Kevin Rousell said of the new obligations: “Time and time again we see examples of consumers who have inadvertently agreed to a contract with a claims management company without a written contract in place. I want people to have time to think through their arrangement and be happy and clear about exactly what the deal is before they part with any money. These new rules will root out poor practice and ensure consumers are better protected by making contract terms much clearer.”

These new rules are in addition to the rules which came into force on 1 April 2013. From this date, CMCs were banned from issuing advertisements that offered cash inducements, and were banned from receiving referral fees. It is also now possible for a customer to refer a complaint about a CMC to the Legal Ombudsman if they are not satisfied with the company’s response.

Some of the new wording in the regulator’s rulebook reads as follows:

  • In soliciting business through advertising, marketing and other means a business must not offer any cash payment or similar benefit as an inducement for making a claim.”
  • “A contract between a business and a client must be signed by the client, and the business may not take any payment from the client until the contract is signed.”
  • A business must keep the client informed of the progress of the claim, including any significant changes to costs that the client may have to meet, and must inform the client of any suspension or variation of the business’s authorisation within 14 days of any imposition of such action.”

There are around 3,000 CMCs in the UK, of which around 1,900 handle personal injury claims and around 1,100 deal with payment protection insurance mis-selling and other financial matters. However, 93% of complaints about CMCs concern companies who process financial claims.