The Ministry of Justice has proposed new rules for claims management companies that will require them to obtain signed contracts from consumers and force them to provide “unambiguous” infomation about relevant ombudsman schemes.
The consultation, published today, proposes rules requiring firms to obtain written, signed agreements from consumers before charging any fees. Currently contracts can be agreed verbally.
The consultation states: “The provision of a written agreement would provide consumers with more protection, by allowing sufficient time for a consumer to read and understand pre-contractual information before agreeing a contract.”
Under the proposals, claims chasers must also provide “unambiguous” information about ombudsman schemes and other forms of redress.
Firms are already banned from implying that consumers can get a more favourable outcome by using them rather than going to the Financial Ombudsman Service, Criminal Injuries Compensation Authority or the Housing Ombudsman Service. The MoJ has now added the Financial Services Compensation Scheme to that list.
The MoJ is concerned the use of its branding makes consumers believe firms are endorsed by the Government, so it is proposing banning the use of its name in promotions. It says firms should only refer to it as the claims management regulator.
The consulation also proposes rules that will require claims firms to keep customers updated by informing them of any variation to, or suspension of, their authorisation status.
Under the proposals, regulated firms could face action if they work with unregulated introducers that break any MoJ rules on advertising, marketing and soliciting business.
Cold calling by firms will be addressed separately to the consultation. The MoJ is working with the Information Commissioner to deal with unsolicited communications such as text messages.
The consultation closes on 3 October. The MoJ will publish a summary of responses in December with the aim of implementing new rules by April 2013.
Which? executive director Richard Lloyd says the Government is not going far enough in clamping down on unscrupulous firms.
He says: “We want to see a ban on upfront fees and tougher enforcement against misleading advertising, because we know many consumers are being misled into using a claims firm when they can easily reclaim their money for free themselves.
“The Government must put pressure on the Information Commissioner to ban cold-calling. Claims firms should also be required to be more upfront, publish all the terms and conditions, fees and charges online and make this information readily available to customers.”
Last week, the MoJ unveiled its plans to tackle payment protection insurance misselling claims by boosting staff numbers and creating a specislist team to target poor practice.