Claims management company clampdownConsultation to put tougher rules in place

23 August 2012

Claims management firms clamp down

The Ministry of Justice (MoJ) has launched a consultation into the regulation of claims management companies to stamp out bad practice and increase consumer protection.

The MoJ published its consultation to propose changes to the rules set for claims management companies, such as enforcing written contracts between CMCs and customers before any fees can be taken.

Which? executive director, Richard Lloyd said: 'This consultation is long overdue. It's a scandal that so many unscrupulous CMCs are still ripping off consumers who just want to claim back what is rightfully theirs.'

Claims consultation recommendations

The consultation further recommends that CMCs should be required to inform their clients of any suspension or variation to the business' authorisation once in effect.

Additionally, it suggests that CMCs should only be allowed to refer to their regulatory status as being regulated by the Claims Management Regulator (CMR), rather than the MoJ.

The regulator has said it is aware that some consumers are being left out of pocket when using a CMC to make a PPI refund claim. This happens when the bank uses the PPI refund to pay off existing debts the customer holds with them instead of providing a cash refund, leaving the customer to pay the CMC via alternative means. 

The consultation will look into the possibility of banning CMCs from charging customers in this position.

Richard Lloyd said: 'We're pleased to see proposals to end verbal agreements and help for consumers who end up out of pocket after using a CMC to make a payment protection insurance refund claim.'

Tougher enforcement for claims management companies

The consultation will now be published on the MoJ website and will be open for consumers and industry members to contribute until 3 October 2012.

Kevin Rousell, head of claims management regulation at the MoJ, said: 'Earlier this month I said the industry will be subjected to radical changes over the next 12 months with tougher rules put in place. I am please to announce the next step in our efforts to drive malpractice out of the industry.'

However, Richard Lloyd at Which? believes that the government is still not going far enough to clamp down on unscrupulous CMCs. 'We want to see a ban on upfront fees and tougher enforcement against misleading advertising, because we know many consumers and being misled into using a CMC when they can easily reclaim their money for free themselves,' he said.

You can put in a PPI claim yourself for free

Many people were sold a PPI they could never claim on, while others didn't know they had the product in the first place. If you can answer 'no' to one or more of these questions, then you may have been mis-sold PPI and could put in a complaint directly to your provider using our free PPI tool.

  • If the insurance was optional, was that made clear to you?
  • Were you told about major exclusions such as pre-existing medical conditions?
  • Did the adviser make it clear that you would have to pay for the insurance up front in one single payment? Did the adviser explain that the insurance cost would be added to the loan and you would pay interest on it?

There are other ways you might have been mis-sold PPI - check out our PPI mis-selling checklist for more questions to ask yourself.

More on this...

  • Claim back your PPI using our free PPI tool
  • Banks' PPI compensation fund breaks £10bn barrier
  • Letter to the justice secretary - clean up claims management companies