Big CMCs face £40,000 hit as government names day for new complaints regime

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4 November 2014


Government: cross-subsidy needed

The Legal Ombudsman (LeO) is set to start receiving complaints about claims management complaints (CMCs) from 28 January 2015 – some two and a half years after the switch from the Claims Management Regulator was first mooted by the government.

The move will mean that CMCs could have to pay consumers compensation, which the current regime does not provide for.

The go-ahead came yesterday after the Ministry of Justice published its response to the consultation on how CMCs will be charged to fund the 3,000 cases a year that LeO expects to receive, at a total cost, including the expenses involved in setting up the new service, of around £3.2m a year.

Despite some opposition, it is pressing ahead with a sliding scale of fees based on annual turnover. The biggest CMCs will pay an amount equal to 0.33% of their annual turnover up to £1m, plus 0.22% of turnover between £1m and £5m, plus 0.18% above £5m. This will all be subject to a cap of £40,000.

At the other end of the scale, CMCs with turnovers of between £75,000 and £163,636 will pay £540, falling to £340 for those with turnovers of between £25,000 and £75,000. The minimum fee will be £75.

Most objections were based on the grounds that larger firms will pay higher fees to subsidise lower fees for smaller firms, which may have poorer customer services and complaints records.

The Ministry of Justice said the consultation made it clear that there would be a cross-subsidy, but that it was justified “as the government is committed to recovering the whole of the Legal Ombudsman’s claims management costs (less the Legal Ombudsman’s case fee income) from the regulated claims management industry, and other ways of structuring the fees would put a disproportionate burden on smaller claims management companies.

“No novel arguments were put forward during the consultation to change our belief that the approach is justified in these circumstances.”

However, there was a commitment to keep the fee framework under the review and, “dependent on the trends in claims management complaints… we will consider whether the structure should be altered to incorporate a greater ‘polluter pays’ element in the future”.

There will be no commensurate reduction in the costs of running the Claims Management Regulator, however, as resource will be refocused on enforcement work.

The ministry yesterday issued another consultation on the technical changes it needs to make to CMCs’ regulatory regime to incorporate the change and bring the requirements on CMCs in line with those on others subject to LeO’s jurisdiction.

LeO’s head of claims management, Simon Tunnicliffe, said: “This is an important step forward for the ombudsman. We look forward to playing our part in raising standards across the claims management industry, and to finally giving consumers access to redress where they have received poor service.”

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