Division of claims complaints costs unfair, says First4Lawyers

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By Legal Futures

9 June 2014

Anwar: no incentive for change

The Ministry of Justice (MoJ) proposals on how the Legal Ombudsman’s costs for handling complaints against claims management companies (CMCs) are recovered disproportionally penalises those working in personal injury, a leading marketing collective has argued.

First4Lawyers said the MoJ has missed an opportunity to tackle some of the dubious practices that give CMCs a bad name by proposing a fees regime based on turnover, rather than wrong doing.

The government has put forward a sliding scale based on turnover to cover the cost of LeO, up to a maximum of £40,000 for the largest CMCs.

The Claims Management Regulation’s (CMR) most recent annual report (for 2012/13) said that 94% of consumer complaints are about CMCs operating in the financial products and services sector – in most cases over mis-sold PPI.

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The Legal Ombudsman has estimated that it will receive around 3,000 complaints about CMCs each year. First4Lawyers aid this meant 2,800 will come from the financial services sector, compared to 150 from PI and a handful from the industrial injuries and criminal injuries work. The CMR data also shows that 80% of complaints are generated by just 5% of CMCs. Most complaints related to unethical marketing practices.

Put another way, there are three complaints for every CMC operating in financial services, compared to one complaint for every 12 CMCs active in PI, industrial injury and criminal compensation.

“It’s clear where the main problem lies, yet the proposals show no recognition of this and, in our view, give no incentive for change,” said Qamar Anwar, director of First4Lawyers. “The reality is that small CMCs operating in PPI are the main cause of complaints, and yet the fee proposed for them is less than £200, while the large, reputable and ethical CMCs such as First4Lawyers could end up paying £40,000. This is neither fair, targeted nor proportionate.”

“Further, these costs will inevitably feed through to our panel firms and squeeze their already tight margins.”

In its consultation response, First4Lawyers proposed that the cost of the new regime should first be split between the six market sectors it covers, based on the percentage volume of complaints each generates. The resulting figures should then be divided evenly between the CMCs operating in each sector to calculate the fee they have to pay.

Given how few CMCs actually generate serious numbers of complaints, First4Lawyers also called for CMCs to be fined based on the number of upheld complaints they receive above a certain threshold. It said this would give a strong incentive for them to improve or leave the industry.

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