Consumers could receive up to £30,000 with legal ombudsman set to assume responsibility for complaints
Claims management companies will be forced to compensate customers if they provide a poor service, the government has announced.
From 2013 the legal ombudsman will be responsible for complaints, meaning consumers who feel they have been treated poorly could be awarded compensation of up to £30,000.
Claims management companies pursue compensation on behalf of consumers, usually in return for a percentage of any eventual cash award. They have mushroomed in the wake of the payment protection insurance (PPI) mis-selling scandal, but also operate in areas such as personal injury, industrial injuries and even the mis-selling of solar panels.
Many send emails and texts to customers soliciting business, usually on a no-win no-fee basis, but there have been accusations of some companies making false claims or asking for upfront payments from consumers.
Currently, when a consumer wishes to complain about a claims management firm it must go to the claims management regulator, but this does not have the power to compensate consumers. Neither are claims management firms authorised by the Financial Services Authority.
In its 2011-12 annual report on claims management regulation, the Ministry of Justice said it had suspended, cancelled or warned 400 claims firms in the year to March 2012, and that 93% of the complaints it received over that period related to financial services claims firms. It said the number operating in that sector had grown from 946 to 975.
The MoJ said the 2013 change will enable its Claims Management Regulation Unit (CMRU) to “refocus its resources on working with the claims management industry to improve standards and take wider action against claims management companies who consistently breach the rules.”
The MoJ’s head of claims management regulation, Kevin Rousell, said: “This reform is a win for consumers and provides yet another tool to help stamp out malpractice in the industry.
“Our CMRU will continue to target those claims management companies who do not comply, and we will work in partnership with the legal ombudsman to root out those that take advantage of consumers.”
Chief legal ombudsman Adam Sampson said: “This is great news for the public and consumers as we have significant powers of redress to help protect them. We are confident we can support the claims management regulator to improve standards across the industry.”
In mid-August the MoJ announced it was cracking down on dodgy PPI claims firms, setting up a specialist unit to investigate mis-selling claims.