Claims Management Companies (CMC) involved in Payment Protection Insurance (PPI) have been told to brace themselves for much tougher new regulations being brought in by the Government.
CMCs that use unsolicited calls and texts, employ misleading advertising and send unsubstantiated PPI claims for compensation to banks have been targeted by Ministers who are determined to stamp out illegitimate claims.
The Government will charge companies with new larger fines if they break tougher new rules that are set to be unveiled later this week by the Claims Management Regulation (CMR) Unit. These will include forcing CMCs to make sure that the claims they are submitting have sufficient evidence included with them and have a realistic chance of success.
Claims handlers will also have to carry out thorough audits of data gathering, in order to stamp out illegal marketing texts and calls.
The fines will be brought in as part of law changes being made through the Financial Services (Banking Reform) Bill which is currently progressing through Parliament and will be enforceable from next year.
Justice Minister Shailesh Vara said the Government would not tolerate companies which waste hardworking people’s time and money through "their own laziness, incompetence or frankly dubious practices".
"We are already making sure rogue companies are shut down – and now we are ensuring those who are wasting everyone’s time will pay for it," he said.
Financial Secretary to the Treasury, Sajid Javid said the new rules would "put PPI claims pests in their place".
"Cold call companies that bother the public will now have one less reason to do so. This will also help free up the banks to pay legitimate claims more quickly," he said.
The Government will employ more staff at the CMR unit and will also look to appoint independent regulatory experts in non-executive roles. It will also commission a comprehensive review of the independence of the unit's governance arrangements.
According to the Government, more than 1,100 claims companies specialise in helping people make claims for compensation for mis-sold financial products. It says that its measures have already seen the number of claims firms operating drop by more than 1,000 since a peak of 3,400 in 2011 to 2,300.