The Government has accepted it must do more to crack down on “dodgy practices” used by some claims management companies.
Speaking in the House of Lords this week, justice minister Lord McNally said CMCs have been encouraged to maximise their claim numbers by the large amount of money banks set aside to compensate for PPI misselling.
He said: “Something like £8bn to £9bn has been set aside and could be returned to consumers and there are some dodgy practices at work in these firms trying to get their hands on this.
“People are being misled and we need to take further action. It does not take a pocket calculator to see these firms can make a lot of money, which should be going to consumers.”
Responding to a question from Labour peer Lord Kennedy, McNally defended the Ministry of Justice’s regulation of CMCs, but agreed to meet with consumer groups to see how it can be improved.
He said: “Perhaps a better home for their regulation can be found but while we have responsibility we will regulate it with due diligence.”
Speaking to Money Marketing, Kennedy says: “The MoJ is supposed to be regulating these firms but, judging by their ability to rip people off by charging up to a third of someone’s payout, it does not look like it is doing a very good job.”
Financial Services Compensation Scheme figures for 2011, published in January, show 75 per cent of PPI claims were brought by CMCs.
Syndaxi Chartered Financial Planners managing director Rob Reid says: “CMCs should be made to contribute to the FSCS levy.”