MOJ bulletin highlights new requirements for CMCs under contract law

In its August 2014 bulletin, the Claims Management Regulator at the Ministry of Justice (MoJ), advises claims management companies (CMCs) about an important new regulatory development.

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 came into force in June 2014. These regulations require CMCs to make a cancellation form available to the customer before a contract is entered into. If a company does not make such a form available, or fails to provide the contract terms and conditions prior to the start of the contract, then the 14 day cancellation period will not commence until these forms and information have been provided.

Another very important issue mentioned in the bulletin is the situation where a financial institution that has already awarded compensation to a customer then re-reviews the complaint and decides to award extra compensation. In these circumstances, the MoJ says that the CMC has no automatic right to a set percentage of the additional compensation, and that to try and claim an additional fee may be not only a breach of the MoJ’s rules, but also a criminal offence under the Fraud Act 2006. The MoJ advises CMCs that their original contract with a customer will conclude when the first tranche of redress is paid, and that should a CMC wish to claim a percentage of any additional payment, then a new contract must be drawn up.

CMCs handling complaints about packaged bank accounts are instructed not to send generic claim letters, and to tailor letters to banks to the circumstances of the individual customer. A similar instruction was given regarding payment protection insurance complaints in the December 2013 bulletin.

Mention is then made of the fact that some CMCs are still submitting invalid claims, indeed for the worst offenders the majority of their claims concern products which have never been taken out by the customer in question. Companies are warned that enforcement action could follow if they continue with this practice.

CMCs who make use of marketing stands or similar are reminded that they cannot approach passers-by and must wait for potential customers to enquire of them.

Finally, the bulletin refers to the new Conduct of Authorised Persons Rules, which take effect on October 1 2014; and the legislation to allow the MoJ to fine CMCs, which is expected to complete its passage through Parliament by the end of 2014. The new rules include: a requirement to establish that claims have a realistic chance of success before submitting them, new obligations to provide evidence to back up claims and the need to conduct thorough audits of data obtained, e.g. sources of marketing leads.