Claims Management Companies (CMCs) have increasingly become a feature of the personal finance landscape.

The best companies can provide a useful service to some consumers, giving advice and taking some of the hassle out of completing the paperwork needed to make a complaint or a claim.

However, APFA has significant concerns about the increasing evidence of manufactured claims.

There are more and more examples of claims being submitted by CMCs where no PPI policy existed or where there is no evidence of any mis-selling.

This amounts to fraud.

Last year the Financial Ombudsman Service dismissed more than 5,000 cases because there had not been a PPI policy sold in the first place. Most of those claims were brought by claims management companies, and it's not just PPI claims that are being manufactured.

The methods used to obtain new business have also become increasingly intrusive, with calls and text messages encouraging you to make a claim reaching epidemic proportions.

Since March 2012, the Information Commissioner has received 60,000 reports from members of the public about unwanted calls and texts, and that's just the tip of the iceberg. These marketing calls and texts need to be tackled as they are often the start of the process in manufacturing a fraudulent claim.

That's why APFA has been working to combat fraudulent claims and rogue CMCs.

We have responded to the Ministry of Justice consultation on how CMCs should be regulated and we have written to the Secretary of State for Justice, Chris Grayling, asking him to take tougher action when CMCs are found breaking the rules.

Read Chris Grayling's response to the CMCs letter.

APFA called for three things:
  1. Higher standards of approval, equivalent to that required by the FSA, are needed for CMCs. This should include scrutiny of business plans and strategy before approval and checks on the integrity of individuals running the firms and corresponding personal accountability for those people.

  2. The Ministry should double the number of staff supervising CMCs. This need not cost the tax payer anything, as it should be paid for by CMCs through their regulatory fees.

  3. Fraud should be treated as the crime it is and swifter action is needed when firms are found to be breaking the rules. When a fraudulent claim is found, by financial services firms or the Financial Ombudsman Service, it should be reported to the Ministry of Justice, and the Ministry should immediately suspend or remove the CMC's authorisation.
But there is still more to be done.

That's why APFA needs advisers' support in pressing the MOJ for change. We need advisers' support so we can build up a body of evidence and for them (and their clients) to report examples of bad practice by CMCs.

What Advisers can do:
  • Advisers can complete the 'Report fraudulent complaints form'. We'll collate the information and pass it to the Ministry of Justice as evidence of wrongdoing.

  • Advisers can also report fraudulent complaints direct to the Ministry of Justice - contact the Claims Regulation Unit.

  • Tell your clients that they do not need to use a CMC and that FOS and FSCS will not charge them a fee if they want to make a claim. If they do use a CMC, they will deduct their fees from any compensation paid - and it could be as much as 25% to 30% plus VAT.

  • Encourage your clients, family and friends to report unwanted marketing messages to the Information Commissioners Office (ICO) and help it investigate the organisations sending them. This will help in the battle to close down the fraudulent companies who generate false claims. Complain to the ICO about nuisance calls and messages.

  • For more information about how to prevent unwanted emails, phone calls and texts, read the ICO's advice.