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By Donia O'Loughlin | Published Aug 23, 2012

MoJ proposes tough new rules for claims companies

The Ministry of Justice’s Claims Management Regulator has launched a consultation proposing tough new rules on claims management firms, including plans to end the practice of agreeing verbal contract agreements to submit complaints before fees are taken.

According to a statement from the CMR, the rules review consultation is the next step in its push to crack down on “bad practice” by some CMCs.

There are three main amendments to the rules:

1) CMCs can only agree contracts in writing with their clients, before an fees can be taken;

2) CMCs will be required to inform their clients of any suspension or variation to the business authorisation once in effect; and

3) CMCs can only now refer to being regulated by the CMR as opposed to the Ministry of Justice, which could have been construed as “endorsement” from the MoJ.

While much of the furore surrounding claims management firms is focused on allegations of high volumes of vexatious complaints against banks over payment protection insurance, financial advisers have also raised concern over spurious complaints giving rise to high case fee bills.

Many advisers were angered recently when the Financial Ombudsman Service refused to distinguish between CMCs and other claimants when it increased the allowance for free case fees, however Fos has argued that the number of frivolous claims is over-stated according to its data.

Ms Ceeney previously told FTAdviser that there needs to be stronger regulation of claims management company’s behaviour.

Kevin Rousell, head of claims management regulation at the Ministry of Justice, said: “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.

“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 pleased to announce the next step in our efforts to drive malpractice out of the industry.

“Time and time again we see examples of consumers who have inadvertently agreed to a contract with a CMC without a written contract in place. We want consumers to be better protected by making the terms of any contract clearer.”

The CMR consultation aims to give consumers and industry members an opportunity to shape the proposals. The consultation closes on 3 October 2012.

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