27th June 2014
Rogue claims firms who plague consumers with nuisance calls and offer bad service will now suffer huge fines under new rules drawn up by the Ministry of Justice.
Claims management companies (CMCs), which typically cold call and text consumers with offers of compensation for mis-sold payment protection insurance (PPI) and accident, will now face fines of up to 20% of their turnover.
This means larger claims firm could face fines of hundreds of thousands of pounds if they are found guilty of using information gathered by unlawful, unsolicited calls and texts, wasting people’s time and money by making spurious or unsubstantiated claims or using misleading marketing.
The number of ‘ambulance chasing’ firms has grown in the wake of widespread PPI mis-selling, with seven in 10 PPI claims brought to the Financial Ombudsman Service through a claims company, although the firms are unlikely to agree a larger payout than if consumers claimed themselves. Claims companies also take between 25% and 30% of the claim as a fee, meaning the consumer would be better off complaining independently.
Lord Faulks said: ‘No longer should claims companies be able to plague hardworking people and waste everyone’s time. The scale of these fines shows just how serious we are about stopping them.
‘This is also good news for the reputable firms in this industry, as it will boost confidence in the services provided by the sector.’
Kevin Rousell, head of the claims management regulation unit at the Ministry of Justice, said ‘again and again’ he had seen examples of bad practice in the claims industry but the new rules will allow his department to take tougher action.
‘We already take tough action against companies which break the rules, but now these fines will help to drive malpractice out of the industry and improve the reputation for those who do follow the correct procedures,’ said Rousell.
The increased fines is another weapon in the arsenal against rogue companies. In April last year a ban on referral fees in personal injury cases was introduced and the latest figures show the number of claims management companies registered to handle personal injury claims had fallen from 2,300 at the start of 2013 to 1,200 at the end of May.