Number of claims management companies falls 30% after referral fee ban
The number of claims management companies registered to handle personal injury claims has fallen by 30% in just over a year, the Ministry of Justice has reported.
According to the MoJ’s Claims Management Regulation unit, there were 1,700 such companies in June 2013, down from 2,435 in March 2012.
The decline has been attributed to the changes in the law on no-win, no-fee deals that came into force in April this year, and the ban on referral fees in particular.
The unit said it had visited than 450 companies in England and Wales since the ban came into effect – “leading to further investigation of 141, action taken against seven and 13 surrendering their licence to trade”. Four firms which were trading without authorisation have been stopped.
The referral fee ban has coincided with tougher rules on claims management companies, including a ban on firms taking fees from customers before a written contract has been agreed or signed.
Other measures include:
- A ban on adverts which offer potential customers cash or gifts for bringing profitable claims to companies; and
- An order that firms must inform clients within 14 days if enforcement action has been taken against them.
The figures were contained in the unit’s annual report, which can be viewed here.
In 2012/13 the regulator cancelled the trading licences of 211 companies, audited 129 and issued formal warnings to 285.
The unit said it would also take further action over PPI claims. More resources, for example, will be dedicated to ensure investigation and enforcement action of PPI claims management companies can be taken quickly.
There will also be increased intelligence sharing with other regulators such as the Financial Ombudsman Service and the Financial Conduct Authority, and continued support for the Information Commissioner’s Office in its drive to tackle unsolicited calls and texts.
Justice Minister Helen Grant said: “We have taken strong action to rein in the rogue firms which have gathered in this sector and the impact is now starting to show.
“Ending these fees which fuelled a growing compensation culture has been an important step to reducing the cost of living for ordinary people - who have ultimately been footing the bill for them through their insurance premiums.”
Kevin Rousell, head of the Claims Management Regulation unit, said: “It is our absolute priority to protect customers and we are making certain that firms are following the rules at a time of major change for the Claims Management industry.
“We do not tolerate bad practice and continue to take action against companies which break the rules, including removing their licence to trade. We shut down more than 200 last year.”