Claims management companies (CMCs) will have to pay a separate ‘Lord Chancellor’s complaints fee’ of up to £40,000 on top of their annual regulation fee with the shift in complaints handling from the Ministry of Justice (MoJ) to the Legal Ombudsman (LeO).
LeO will take over CMC complaints at the end of this year. It expects to handle around 3,000 complaints a year, at a total cost, including the expenses involved in setting up the new service, of around £3.2m a year.
LeO has promised to “ring-fence” complaints about CMCs, keeping them separate from complaints about lawyers and with separate budgets.
In a newly issued consultation on the new fee framework, the MoJ rejected the options of taxpayers footing the bill and of charging a flat fee, as it would “have a disproportionate effect on small and medium-sized entities”, and for many the charge could amount to half their turnover.
Instead, the ministry has put forward a sliding scale of fees based on annual turnover, the method used to calculate the annual regulation fee.
The biggest CMCs would 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 would 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 would pay £540, falling to £340 for those with turnovers of between £25,000 and £75,000. The minimum fee would be £75.
Alan Nesbit, chairman of the Association of Regulated Claims Management Companies and a solicitor, said the introduction of the new fee was “absolutely fine in principle”, when you considered what lawyers have to pay.
“The image of CMCs is shoddy at best, criminal at worst. CMCs need to understand that having an ombudsman scheme of this kind gives them a whole level of respectability which they need to have. They often provide a good and responsible service.
“As much as people would like the government to pay for everything, it’s not going to happen.”
Mr Nesbit predicted that LeO would receive more than 3,000 complaints a year, the “vast majority” about payment protection insurance claims.
The MoJ said that, “for ease of administration”, the ministry’s Claims Management Regulation Unit, rather than LeO, would collect the new fee. Failure to pay could result in enforcement action, including suspension and cancellation of authorisation as a CMC.
For the current financial year the MoJ said it was likely that only four months of expenditure by LeO would be covered by the complaints fee, which would be collected at the same time as the regulation fee in February or March next year.
After the consultation ends, on 6 June, the ministry said that the new fees would have to be set out in regulations and approved by Parliament.