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Dealing with Debt: Ministry of Justice clamps down on dodgy claims firms

Richard Catlin
24 November 2009

The Ministry of Justice (MoJ) has continued its battle against dodgy claims management companies by barring a record number from trading - and says that 1 in 4 are in breach of its guidelines.

19 firms were suspended or de-authorised in September, taking the total so far to well over 100.

Claims management firms have increased in number dramatically in recent years, responding to the emergence of the "claim culture", with an estimated 3,000 now in existence - helping consumers to prepare claims for various problems including mis-sold payment protection insurance, unenforceable credit agreements and unfair bank charges.

Many claim management firms require up-front fees and offer no guarantee of success. Some are firms of solicitors which are regulated by the Law Society, but many others are not.

The MoJ revealed recently that as many as 750 of those 3,000 companies are breaking the law by misleading consumers about their chances of success and failing to disclose the fees they charge.

A recent ruling in the High Court on unenforceable debts set an important precedent, but failed to resolve matters as clearly as some would prefer, and a further 12 test cases to be heard at the end of November should determine the likely outcome of the backlog of claims.

Consumer groups have warned that if individuals believe they have a claim, they should first approach fee-free services such as those offered nationwide by the Citizens Advice Bureau. With consumers already struggling to make ends meet, up-front fees of between £100 and £500 should not be countenanced until free advice options have been exhausted.

If you are worried about debts - big or small - you can get completely free and impartial tips on what you can do and where best to turn on checkmyfile.

We will of course be keeping you updated on the outcome of the test cases as soon as they are heard.

Check out our free Debt Advice Centre now