MoJ to crackdown on 'greedy' claims management companies

The Ministry of Justice (MoJ) is to provide consumers with greater protection by cracking down on the high fees charged by some claims management companies (CMCs).

Under new proposals, the fees charged by CMCs for winning financial claims cases - which can be as much as 40 per cent of the final compensation - will be capped.

The changes aim to stop companies charging exaggerated prices and allow the public to obtain more of the compensation due to them.

Among the changes, a 15 per cent cap on the maximum completion fee for 'bulk' claims with a single lender will be enforced, while the overall charge for claims worth more than £2,000 will be limited to £300.

A maximum 'cancellation' fee of £300 for bulk claims will be introduced when a consumer cancels their contract with a CMC after the initial 14 day 'cooling off' period.

Further changes include banning CMCs from receiving or making any financial payment for referring a consumer to a third party in relation to a PPI or packaged bank account claims.

Fees where no relationship is found between a consumer and a lender will be prohibited, as well as upfront fees for all financial claims, where CMCs ask to be paid before any work is carried out.

A cap of 25 per cent for the maximum completion fee of the final compensation amount awarded in all other types of financial cases will also be put in place.

Commenting on the announcement, Justice Minister Lord Faulks said: 'Some CMCs charge as much as 40 per cent of the final compensation awarded for very little work.

'This has got to stop, and this government is taking action to make sure people aren't being taken advantage of by these greedy practices.'

Kevin Rousell, head of the Claims Management Regulator (CMR), added: 'The proposals are another step we are taking to ensure the industry provides a better deal for those consumers and operates to more professional standards.'

An estimated £3.5bn has been taken by CMCs in charges since 2011 and there is widespread concern from consumer groups, banks, and insurers that some firms continue to fuel speculative claims through aggressive marketing and nuisance calls.

Since 2010, over one thousand licenses have been removed by CMR. In January, a Swansea firm had its licensed revoked after making almost 40 million nuisance calls in just three months.

In December, the National Advice Clinic was fined a record £850,000 by the regulator after it made nearly 6 million nuisance calls, despite many of those called being registered with a telephone preference service.