Claims management companies will have to agree contracts in writing with their clients before taking fees, the Ministry of Justice announced today.
The MoJ’s claims management regulator published new conduct rules – coming into force from this summer – in its response to a consultation on tougher regulations for the industry.
It will insist CMCs can no longer refer to their status as being regulated by the MoJ, which had been construed by some consumers as government endorsement.
They will also have to inform clients if they are suspended or have restrictions imposed within 14 days of the enforcement action being taken.
The MoJ says it will perform an ‘industry-wide crackdown’ which will include enforcing new powers to prevent consumers being offered a cash incentive to sign up to a CMC.
Kevin Rousell, head of claims management, 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.
‘These new rules will root out poor practice and ensure consumers are better protected by making contract terms much clearer.
‘Enforcing new rules will help to drive malpractice out of the industry and improve the reputation for the vast majority of CMCs that do follow the rules.’
Around 3,000 CMCs are licensed to provide claims management services, with around 1,900 dealing with personal injury and 1,100 financial claims.
In spite of this, personal injury accounts for less than 5% (386) of consumer complaints, compared with 8,521 complaints about financial claims CMCs.
Between April 2011 and March 2012, 260 CMCs had their licences removed. Of these, 66 were operating in the financial products and services sector, which includes PPI claims.
The MoJ stated that a relatively small number of CMCs - around 15 - prompt a significant proportion of consumer complaints.