The number of claims management companies (CMCs) registered to pursue personal injury claims has declined by almost a third, according to the Ministry of Justice (MoJ) which has said it will seek to improve regulation of those companies pursuing payment protection insurance (PPI) claims.

CMCs handling personal injury claims dropped from 2,435 in March 2012 to 1,700 in June this year, a fall attributed to a government ban on referral fees which came into force in April this year.

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Under the Legal Aid, Sentencing and Punishment of Offenders Act 2012, fees between lawyers and CMCs were banned alongside the practice of firms taking fees from customers on the basis of a verbal agreement only.

The figures come from the MoJ’s Claims Management Regulation Unit (CMRU), which shut down 211 CMCs, including those dealing with PPI mis-selling claims, and warned 285 more in the 2012/13 financial year, according to its annual statement published this week. Investigation of a further 141 companies which began in April has resulted in action against seven firms and 13 surrendering their licence to trade.

No sale

The CMRU also claimed it has "stepped up" its approach to tackling malpractice in PPI claims, repayments for such claims having recently passed the £10bn mark according to the Financial Ombudsman Service (FOS).

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The Unit will continue to work with the Information Commissioner’s Office which imposed the first fine on a company for unsolicited text messages related to PPI compensation at the end of 2012.

According to the CMRU, 2,021 complaints regarding CMCs were received from non-consumers in 2012/13, with the most common issues being claims firms not obtaining sufficient information from consumers or researching the merits of a claim.

As noted by Stephen Sklaroff, director general of the Finance & Leasing Association, trade body for finance providers in the UK, in November 2012, CMCs filed 53,000 "unfounded" PPI claims between January and September 2012 where PPI had never been sold.

The CMRU noted the volume of "non-sale" PPI complaints "has remained of particular concern" and added its specialist PPI compliance team would work to reduce the proportion of such claims, and to improve the behaviour of CMCs in the financial products and service sector, as well as their relationships with financial services providers. Addressing such issues and the "premature involvement" of the FOS will be one of the eight priorities for the Unit in 2013/14.

richard.brown@timetric.com