No to ad incentives for CMCs

Claims management companies (CMCs) are to be banned from offering cash incentives to people who use their services.

Ministry of Justice minister Jonathan Djanogly has also announced a “complete ban on inducement advertising”.

He said regulatory action against CMCs had been stepped up over the last 12 months and a number were being “watched closely” by the regulatory body, the Claims Management Regulation (CMR) Unit.

The unit’s annual report for 2011–12, published last month, shows that more than 400 CMCs were suspended or warned in the last year. Of these, 260 were shut down.

Djanogly said: “This is a significant number and proves just how much work is going on to clamp down on CMCs that flout the rules and prey on consumers with over-zealous business tactics.

“The key focus of the CMR unit is to improve consumer protection by driving malpractice out of the claims management industry. We also want to see tougher rules enforced on CMCs and that’s why I am pleased to announce we are now introducing a complete ban on inducement advertising for this industry.

“No longer will CMCs be able to target consumers through advertisements which offer vulnerable individuals a cash incentive for signing up to use their services.”

Ministry of Justice head of claims management regulation Kevin Rousell says the mis-selling of payment protection insurance (PPI) led to a surge in the number of CMCs operating in the financial claims management sector.

“Poor practice is rife among some CMCs, who are falling over each other to get claimants’ business. To help tackle this we have set up a specialist team to root out the poor practices used by some companies presenting claims for mis-sold PPI.”

Rousell says the aim of the unit is not to stop CMCs trading but to make sure they operate responsibly.

“Flooding defendants, particularly lenders, with many thousands of poorly prepared claims is unacceptable and clogs up an already overloaded system, which can be of detriment to consumers with valid claims, as well as causing unnecessary additional processing costs.”