Government to ban claims management inducement advertising

Jonathan Djangoly said that a "complete ban on inducement advertising" by claims management companies would "improve consumer protection by driving malpractice out of" the industry.

The ban, consulted on by the Ministry of Justice (MoJ) last year, will come into force from April 2013 according to the Law Gazette.

The announcement came as the Claims Management Regulation (CMR) Unit, part of the MoJ, revealed that it had cancelled or suspended the licences of more than 400 CMCs over the past twelve months, or issued them with a formal warning, as part of its annual report. The unit shut down 260 of the 409 poor practicing CMCs it investigated in that period.

The figures show an increase in enforcement activity by the CMR Unit, which has removed the licences of over 700 companies since regulation began in 2007.

Kevin Rousell, head of claims management regulation at the MoJ, said that the mass mis-selling of payment protection insurance (PPI) had seen a "surge" in the number of CMCs operating in the financial services sector.

"Poor practice is rife amongst some claims management companies who are falling over each other to get claimants' business," he said. "To help tackle this we have set up a specialist team to root out the poor practices used by some companies presenting claims for mis-sold PPI. Our team of investigators are using effective enforcement to stop bad practice and improve the industry once and for all."

He warned that the next 12 months would see "radical changes" and "tougher policing" in the sector, including ongoing work to tackle unsolicited direct marketing calls and SMS text messages. The CMR Unit was working closely with a number of telecom regulators - including privacy watchdog the Information Commissioner's Office (ICO) - to crack down on these forms of unwanted contact.

Consumer protection watchdogs have previously called on the Government to crack down on CMCs after research revealed that as many as a quarter of people bringing PPI complaints via a CMC did not realise that they would be charged a fee – usually 25% of any compensation entitlement plus VAT – for something that they could do themselves for free. Only 49% of respondents to the survey of over 2,000 people, carried out by Which? and MoneySavingExpert.com, knew that using a CMC would be no more successful than bringing a claim on their own while two thirds of the people surveyed had received phone calls from CMCs about PPI.

At a summit hosted by the two organisations in April, banks and regulators pledged to make it easier for customers to bring their own claims without recourse to CMCs. Representatives from banks, credit card providers and the Financial Ombudsman Service (FOS) in attendance said that they would work together to standardise complaints procedures and improve communication with customers.

In a statement on its website, the ICO said that it was "working closely" with other regulators to try to identify the companies responsible for unsolicited SMS text messages in relation to potential legal claims. It said that it was likely that texts were being sent to "randomly generated" mobile telephone numbers "in the hope that a proportion may reach the mobile phone of someone who has recently had an accident, or been sold a financial product".

"The messages appear to breach the Privacy and Electronic Communications Regulations because they are being sent to individuals without prior consent and without identifying the sender," the ICO said. "The messages also appear to breach other legislation and codes of practice."