The Treasury and the Ministry of Justice (MoJ) have launched their ‘call for evidence’ as they prepare to undertake a detailed review of the regulatory system claims management companies (CMCs) operate under.

With over 2,000 CMCs active in the market, and concerns growing over some companies’ unsolicited communications and other marketing practices, the number of spurious claims being submitted and the level of charges paid by customers, many believe it is high time the regulatory regime was overhauled. At present, CMCs are regulated by the Claims Management Regulator at the MoJ, and have a certain number of rules they need to follow. The MoJ can withdraw companies’ authorisation, levy fines or impose trading conditions on those that breach the rules, but the MoJ’s resources to supervise CMCs remain limited.

Comments are now invited from CMCs, trade associations, consumer groups and other interested parties. The deadline for submissions is November 13 2015.

Although the review process is still in its early stages, it seems certain that the final outcome will be a tougher regulatory environment. The Government press release regarding the call for evidence is headlined: “Clampdown on rogue claims management companies”; ministers are already openly speaking of imposing a charge cap; and the terms of reference of the review indicate that the options of bringing CMCs under the Financial Conduct Authority’s jurisdiction, or of creating a new independent regulator, are being considered.

Concerning the charge cap, CMCs might currently take more than a third of a customer’s compensation award in fees. The press release now speaks however of ensuring customers “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.” Upfront fees may be banned altogether.

Carol Brady, chairman of the Chartered Trading Standard Institutes board, will lead the review, and will report to the Treasury and the MoJ early in 2016.
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.”
Economic Secretary to the Treasury, Harriett Baldwin MP, added:
“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.”
Whatever the outcome of the review, the regulatory landscape for CMCs has changed significantly in recent years. Some of the changes that have already been announced include:

• A ban on personal injury referral fees
• New rules, with additional requirements regarding: investigating the merits of a potential claim, maintaining records, ensuring date from third parties is obtained legally and having competent staff and management
• Fines of up to 20% of a company’s turnover in case of misconduct
• The facility to refer CMC complaints to the Legal Ombudsman if clients disagree with the company’s resolution of the issue
• Making it easier to punish firms who make nuisance calls. Fines can now be imposed by the Information Commissioner’s Office simply because the communications cause ‘annoyance, inconvenience or anxiety’

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.