Trade body the Claims Standards Council says up to half of payment protection insurance claim firms could leave the industry in the wake of the Legal Ombudsman being handed redress powers.
The Ministry of Justice this week announced it will give responsibility for complaints against CMCs to the ombudsman from next year.
The Legal Ombudsman is funded by an industry levy and £400 case fee, with firms receiving two free cases a year. It says the redress scheme could cost the CMC industry millions with the possibility of thousands of complaints.
The ombudsman can award compensation of up to £30,000 or take action to ensure a case was properly resolved. Officials are considering increasing the limit to £50,000.
Consumers can complain to the Ministry of Justice, which regulates CMCs but does not have powers of redress.
There are about 3,000 claims management firms in the UK, with 2,000 dealing with PPI claims.
CSC policy director Andrew Wigmore (pictured) says: “You could see well over a thousand leaving this industry pretty rapidly and it is mainly in the PPI area. The ombudsman will do a good job and they are going to be absolutely on the money with this from the start.”
The ombudsman says it will publish complaints data made against claims management firms and name individual firms who are found to be repeat offenders.
Chief Legal Ombudsman Adam Sampson says: “The cost for claims firms could be anything from a few hundred thousand pounds to over £3m but we do not know for sure at the moment. To a significant degree a lot of it is in the industry’s hands as we will only investigate complaints that are not resolved.”
Sampson added that if a high number of PPI related claims are unresolved then the ombudsman could end up dealing with thousands of complaints.