Rogue companies may have to pay out

Rogue claims management companies (CMCs) could be forced by the Legal Ombudsman to pay compensation to consumers, under a crackdown announced by the Government.

From next year people who feel they received a poor service from CMCs can take their complaint to the ombudsman which has powers to ensure people receive compensation where appropriate, up to a maximum of £30,000.

CMCs have come under fire for encouraging bogus claims against banks for the widespread mis-selling of payment protection insurance (PPI). It has been argued that people have turned to such companies because financial institutions which mis-sold PPI are not transparent enough in helping people to make claims themselves.

People tend to be just as likely to be a successful if they make a PPI claim on their own as they would using a CMC which often takes around a quarter of any payout.

The Ministry of Justice said that thousands of people have been let down by a "small number" of CMCs and that the changes will also help wider action to be taken against consistent rule-breakers.

Chief Legal Ombudsman Adam Sampson said: "This is great news for the public and consumers as we have significant powers of redress to help protect them."

Consumer champions such as moneysavingexpert.com and Which? have been pressing the Government for tougher regulation of CMCs.

Richard Lloyd, Which? executive director, said: "This is a positive result for consumers. We have been calling for the Legal Ombudsman to handle complaints about claims management companies as it means consumers who have been treated badly will get access to some form of compensation.

"However, we want to see the Government do more to clean up the CMC industry. We want a ban on upfront fees and cold calling, and for CMCs to be required to publish online all of their terms and conditions, fees and charges. Far too often consumers are being ripped off by unscrupulous CMCs, when they can easily reclaim the money by themselves for free."

Chris Lawrenson, head of legal services at the Building Societies Association, described the announcement as a "major step forward for consumers". He said: "We welcome the decision to bring CMCs under the umbrella of the Legal Services Ombudsman and hope that consumers will have access to this service as early as possible in 2013."