There was a sharp increase in the number of claims management companies (CMCs) closing down in the first three months of 2013 ahead of the referral fee ban coming into force, Legal Futures can report.
The news comes as the government announces a tightening of CMCs’ conduct rules.
So far in 2013, 343 CMCs have surrendered their authorisation, compared to 189 during the same period of 2012.
Along with other action taken by the Ministry of Justice’s Claims Management Regulator (CMR), the fall marks a continuing contraction in the number of CMCs; there are now 2,693, compared to 3,007 at this time last year and 3,213 the year before.
The new conduct rules coming into force this summer – following a consultation last year aimed at addressing bad practices – mean that:
- CMCs must agree contracts in writing with their clients, before any fees can be taken;
- CMCs must refer to their regulatory status as being regulated by the CMR rather than the Ministry of Justice, which risked being misconstrued as government endorsement; and
- CMCs must inform clients if they are suspended or restrictions imposed on their business within 14 days of the enforcement action being taken.
The ban on inducement advertising by CMCs also came into force last Monday.
CMR head Kevin Rousell said: “Time and time again we see examples of consumers who have inadvertently agreed to a contract with a CMC without a written contract in place. I want people to have time to think through their arrangement and be happy and clear about exactly what the deal is before they part with any money.
“These new rules will root out poor practice and ensure consumers are better protected by making contract terms much clearer. Enforcing new rules will help to drive malpractice out of the industry and improve the reputation for the vast majority of CMCs that do follow the rules.”