The Ministry of Justice (MoJ) has announced huge increases in the regulation fees paid by claims management companies (CMCs).
The cap on the annual regulation fee will increase from £50,000 to £150,000, while the application fee for new businesses will rise from £1,400 to £2,000.
The MoJ said that despite the drop in the numbers of firms, claims management regulation could not “similarly scale back until a higher level of compliance is established throughout the industry”.
The ministry went on: “The numbers of non-compliant businesses remains a minority, but continues to generate disproportionately high levels of complaints and enforcement action.
“Reductions in the numbers of authorised businesses have not reduced the number of regulatory actions needed to deal with non-compliant business activities.”
The MoJ said regulation was intended to be self-financing, and fee levels were based on estimates of income received and the cost of the Claims Management Regulation Unit (CMRU), expected to be around £5m in the year 2015-16.
In a consultation on the fee increases launched in November, the MoJ proposed increasing the flat fees charged to CMCs with a turnover of up to £88,889 to between £200 and £800, depending on precise turnover.
For bigger businesses it put forward two options – one of which would have seen the annual regulation fee cap abolished and the fee charged , the other an increase from £50,000 to £100,000, with the fee based on different turnover percentage.
The response was published yesterday and combined the two. While a new cap of £150,000 will be imposed on what CMCs will have to pay, the fee will be calcuated as 0.9% on annual turnover of up to £1m, 0.8% on turnover up to £5m and 0.75% over £5m.
The MoJ said removing the cap would unfairly assign “greater regulatory burden to a small number of businesses which are on the whole well operated and compliant”, while also overly exposing the funding model if only a fraction of these businesses ended up leaving the market.
CMCs are facing a three-pronged attack from increased regulation fees, the need to pay a separate “Lord Chancellor’s complaints fee” of up to £40,000 to fund the Legal Ombudsman and, since the beginning of this year, the prospect of huge fines imposed on those who break the rules by the CMRU.
A spokesman for the marketing collective First4lawyers said that while he accepted the need for self-funding and the changed business landscape, “we are somewhat disappointed that our reward for implementing best practice and good governance is to end up with a real terms increase of around 130% in the fees we are expected to pay” to cover the cost of the CMRU and LeO.
“We hope that these increases, and the introduction of a dedicated complaints handling service, will deliver some positive change to the sector eradicating those firms that flout the regulations and participate in unacceptable marketing activities.”