MPs have claims management companies in their sights

The decision of government business managers to schedule a three hour backbench debate next Thursday (8 November) on the Regulation of Claims Management Companies shows the level of concern across all parties at the activities of these firms, especially in relation to personal injury claims and payment protection insurance (PPI) compensation.

The sector appears to have few friends among MPs judging by the questioning at this week's meeting of the All Party Parliamentary Group on Insurance & Financial Services on the subject. We can expect to hear some scathing attacks on the cold-calling and unsolicted texts that are widely used by claims management companies and the people they buy sales leads from. There will also be sustained criticism of their parasitic role in the PPI misselling scandal where many firms are taking between a quarter and a third of compensation for, as Jonathan Evans chairman of the group said at the meeting, "getting someone to fill in a form and send it off". It seems to me that people who the banks took for a ride in selling them PPI they didn't need and would never be able to claim under are now in danger of being robbed twice.

According to the Legal Ombudsman, Adam Sampson, as the number of new claims received by the Financial Ombusman Service has risen to a staggering 1500 a day, the proportion being handled by claims management companies has been diluted, dropping from 80% to 50%. Even at this proportion if the average claim is settled for as little as £1000 that is alot of money meant to be redress for consumers going to claims management firms instead. The form is simple, it is on-line and can be completed by consumers for free, although how much effort has been made to promote that is a question that needs to be asked by MPs.

Kevin Rousell, head of the Claims Management Regulation Unit at the Ministry of Justice (pictured), did make some valid points to MPs in defence of the role of claims management firms, if not of their methods. He highlighted the lack of trust in financial institutions and widespread financial illiteracy as two of the reasons why some consumers are willing to part with a large slice of compensation for the feeling that someone will be making sure they are not ripped off again. The "lack of understanding probably contributed to them being missold PPI in the first place", he said: a damming indictment of the way banks view their customers.

For the Ministry of Justice the key to ensuring customers are dealt with fairly is transparency. He said they look for clear evidence that consumers understand how much commission a claims management company will take. The CMRU has also moved to stop firms pressurising customers to sign authorisations allowing compensation to be paid to the firm rather than to the consumer, although MPs felt they had evidence that this was still going on.

The Legal Ombusdman expects to get new powers to extend its remit to cover claims management by April next year and I wouldn't be surprised to hear calls in next Thursday's debate to speed this up. Mr Sampson certainly sounded tough when speaking to the All Party Group this week, claiming "there is a lot of consumer detriment out there". He said that among the key challenges he faces is understanding "how much pent up consumer anger there is". Many firms have poor complaints handling procedures - ironic considering the service they hold themselves out to offer - and some of those with the worst processes have already disappeared, he said.

He was very clear that self-policing hasn't worked and that regulatory action is needed, citing the epidemic of illegal texts, mainly around road traffic accidents. Whiplash and RTA-related claims, he said, have become a financial commodity and that has created a market with some dubious firms operating in it and such firms will never be subject to effective self-policing.

The barrage of criticism from those at the meeting is likely to be repeated and amplified during next week's debate and the whole sector is going to take a huge dent to its image and repuation as a result. We have to remember that there are reputable firms in the claims management arena who do a good job ensuring that consumers with geniune - and often serious - problems get the help they need in fighting their way through the procedures and processes of powerful and intimidating institutions. These firms need to work harder to distance themselves from their less reputable cousins.

Read the full Ministry of Justice submission to the All Party Group MoJ presentation