MoJ puts CMCs firmly under the spotlight
Consumers who get stung by unscrupulous claims management companies will now be able to claim compensation under new rules brought in by the Ministry of Justice.
CMCs which provide poor service could be forced to pay compensation or another form of redress to consumers, under fresh plans unveiled by the MoJ in response to a rising number of cases where CMCs have breached rules or issued bogus complaints.
From 2013, consumers let down by CMCs will be able to take their complaints to the the Legal Ombudsman, which has statutory power to ensure consumers can get compensation where appropriate.
The change will also free up resources in the Claims Management Regulation Unit within the MoJ to focus on working with the claims management industry to improve standards and take wider action against CMCs which consistently breach the rules.
Consumers can currently turn to the Ministry of Justice to get their complaints heard, but the MoJ has no power to award financial redress.
Head of claims management regulation Kevin Rousell said: “This reform is a win for consumers and provides yet another tool to help stamp out malpractice in the industry.
“Our claims management regulation unit will continue to target those CMCs who do not comply and we will work in partnership with the Legal Ombudsman to root out CMCs that take advantage of consumers.”
Chief legal ombudsman, Adam Sampson, said: “This is great news for the public and consumers as we have significant powers of redress to help protect them. We are confident we can support the claims management regulator to improve standards across the industry.
“Our priority now is to ensure we’re ready to start accepting complaints once all the necessary arrangements are in place.’
Chris Lawrenson, head of legal services for the Building Societies Association, said: “This is a major step forward for consumers who have an issue with a CMC.
“The matter is urgent as the CMCs operating in the payment protection insurance sector are generating by far the most consumer complaints.”
Figures from the MoJ show 74 per cent of PPI complaints are generated by CMCs, of which the vast majority of made against just 15 to 20 firms out of more than 1000 authorised in the financial services category.
Mr Lawrenson said: “We trust the new ombudsman will take the same approach as the Financial Ombudsman Service and publish complaints data with the names of CMCs with the worst consumer complaints records. This information should be made public as soon as possible for the benefit of consumers.”
Richard Lloyd, Which? executive director, said: “We have been calling for the Legal Ombudsman to handle complaints about CMCs as it means consumers who have been treated badly will get access to some form of compensation.
“However, we want to see the Government do more to clean up the CMC industry.”
As reported in Financial Adviser, Alan Lakey, partner for Hertfordshire-based Highclere Financial Services and Derek Bradley, founder of PanaceaIFA, met with senior officials from the Ministry of Justice claims management regulation division in June about the problems surrounding CMCs.
The officials explained at the time the difficulty in regulating CMCs, saying although licences continue to be revoked, little can be done about CMCs which re-launch using a third party or relative.