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An increasing number of claims management companies are misleading vulnerable consumers by promising they can get their debts written off for a fee, the Ministry of Justice (MoJ) said this month.
The warning came as the MoJ announced that 100 claims management companies had had their authorisation cancelled since April 2007, when new regulations to control the industry came into force.
Companies lost authorisation for a variety of reasons, including ignoring requests for information from the regulator, criminal convictions for fraud, persistently making misleading claims in their marketing and non-payment of fees.
Kevin Rousell, Head of Regulation at the MoJ said the number of cancellations sent a "strong message" to companies about the consequences of non-compliance.
"The majority of claims management companies registered with the Ministry of Justice are operating within the rules. However, some companies choose to flout those rules and some also target consumers who find themselves in debt," he said.
"People may have paid large up-front fees for a service that does not live up to the marketing hype, and in the case of debt-related claims, find themselves still liable to pay all their debts in full," said Rousell.
"We will be continuing to step up the strong action needed to deal with those claims management companies found to be disregarding the rules and the interest of the public".
Personal injury claims
The trend towards debt-related claims is relatively recent. In 2007, when the regulatory regime was introduced, the focus was primarily on personal injury claims and so-called "ambulance chasers" who hung around hospital corridors touting for business.
The rules, however, also cover claims management services relating to criminal injuries compensation, industrial injuries disablement benefit, employment, housing disrepair and financial products and services.
Five main problems were identified from the outset: misleading advertising, high pressure selling (often on hospital premises) confusing contractual agreements, cases being run for the company’s benefit not the client's and fraud.
Under the regulations, companies now have to be authorised to provide claims management services and must follow strict conduct rules, which include providing written information on how to pursue a claim and the costs involved before the contract is agreed and a 14-day "cooling off" period. Cold calling in person and high pressure selling are banned.
The MoJ, which currently regulates the sector, believes the system has already had considerable success. A regulatory impact report published in July said cold calling in person has significantly reduced and that unauthorised marketing in hospitals has largely been eliminated. Misleading claims in advertising and on websites – in particular the use of the phrase "no win no fee" without proper qualification – have also almost entirely disappeared.
The report concluded that malpractice relating to personal injury claims is now "predominantly carried out by solicitors," who are regulated by the Solicitors Regulatory Authority. The SRA is currently reviewing its rules in this area.
The MoJ has, however, also noticed an increase in a new type of cold calling via call centres. Misleading advertising is being replaced by misleading promises and information given during sales calls, which are much more difficult to monitor.
In some cases, companies have been trying get round the rules by first getting the consumer to complete a "lifestyle questionnaire", which they may even be paid to complete. After a series of innocent questions, the consumer is asked if they have had any recent injuries and whether it would be helpful for a solicitor to give them a call. The case is then sold to a claims company or to a firm of solicitors.
Debt claims
Problems concerning consumer credit claims started to become apparent during the second half of 2008, with claims management companies promising consumers they could get credit card debts written off within six weeks or that "80% of credit agreements are unenforceable".
Under the Consumer Credit Act, if a lender does not comply with the provisions of the Act it will be unable to enforce repayment of a loan. Claims management companies rely on this to give consumers the misleading impression that they will be able to find technical irregularities in the documentation that will render the loan unenforceable, provided of course the consumer pays a hefty fee upfront. Not surprisingly, these claims are strongly disputed by the consumer credit industry.
The report states that the collective response to this problem from various regulators has not been sufficient. "This issue needs to be tackled more urgently and to do so is likely to require significant additional resources".
The MoJ goes on to suggest that, with over 2,500 authorised companies in operation, claims management regulation is no longer a niche business capable of being handled from within a government department. "The time is approaching when the scope and structure of the regulation need to be reviewed," it said.
Claims management companies still flouting rules, warns Ministry of Justice | Pinsent Masons LLP
The warning came as the MoJ announced that 100 claims management companies had had their authorisation cancelled since April 2007, when new regulations to control the industry came into force.
Companies lost authorisation for a variety of reasons, including ignoring requests for information from the regulator, criminal convictions for fraud, persistently making misleading claims in their marketing and non-payment of fees.
Kevin Rousell, Head of Regulation at the MoJ said the number of cancellations sent a "strong message" to companies about the consequences of non-compliance.
"The majority of claims management companies registered with the Ministry of Justice are operating within the rules. However, some companies choose to flout those rules and some also target consumers who find themselves in debt," he said.
"People may have paid large up-front fees for a service that does not live up to the marketing hype, and in the case of debt-related claims, find themselves still liable to pay all their debts in full," said Rousell.
"We will be continuing to step up the strong action needed to deal with those claims management companies found to be disregarding the rules and the interest of the public".
Personal injury claims
The trend towards debt-related claims is relatively recent. In 2007, when the regulatory regime was introduced, the focus was primarily on personal injury claims and so-called "ambulance chasers" who hung around hospital corridors touting for business.
The rules, however, also cover claims management services relating to criminal injuries compensation, industrial injuries disablement benefit, employment, housing disrepair and financial products and services.
Five main problems were identified from the outset: misleading advertising, high pressure selling (often on hospital premises) confusing contractual agreements, cases being run for the company’s benefit not the client's and fraud.
Under the regulations, companies now have to be authorised to provide claims management services and must follow strict conduct rules, which include providing written information on how to pursue a claim and the costs involved before the contract is agreed and a 14-day "cooling off" period. Cold calling in person and high pressure selling are banned.
The MoJ, which currently regulates the sector, believes the system has already had considerable success. A regulatory impact report published in July said cold calling in person has significantly reduced and that unauthorised marketing in hospitals has largely been eliminated. Misleading claims in advertising and on websites – in particular the use of the phrase "no win no fee" without proper qualification – have also almost entirely disappeared.
The report concluded that malpractice relating to personal injury claims is now "predominantly carried out by solicitors," who are regulated by the Solicitors Regulatory Authority. The SRA is currently reviewing its rules in this area.
The MoJ has, however, also noticed an increase in a new type of cold calling via call centres. Misleading advertising is being replaced by misleading promises and information given during sales calls, which are much more difficult to monitor.
In some cases, companies have been trying get round the rules by first getting the consumer to complete a "lifestyle questionnaire", which they may even be paid to complete. After a series of innocent questions, the consumer is asked if they have had any recent injuries and whether it would be helpful for a solicitor to give them a call. The case is then sold to a claims company or to a firm of solicitors.
Debt claims
Problems concerning consumer credit claims started to become apparent during the second half of 2008, with claims management companies promising consumers they could get credit card debts written off within six weeks or that "80% of credit agreements are unenforceable".
Under the Consumer Credit Act, if a lender does not comply with the provisions of the Act it will be unable to enforce repayment of a loan. Claims management companies rely on this to give consumers the misleading impression that they will be able to find technical irregularities in the documentation that will render the loan unenforceable, provided of course the consumer pays a hefty fee upfront. Not surprisingly, these claims are strongly disputed by the consumer credit industry.
The report states that the collective response to this problem from various regulators has not been sufficient. "This issue needs to be tackled more urgently and to do so is likely to require significant additional resources".
The MoJ goes on to suggest that, with over 2,500 authorised companies in operation, claims management regulation is no longer a niche business capable of being handled from within a government department. "The time is approaching when the scope and structure of the regulation need to be reviewed," it said.
Claims management companies still flouting rules, warns Ministry of Justice | Pinsent Masons LLP
