The Ministry of Justice (MoJ) has closed down more than a hundred claims management firms in the last two years, after they had been found guilty of giving misleading debt advice to vulnerable consumers.
The report from the MoJ said the companies, which included a number of personal injury and claims management firms, were guilty of a number of various offences, including persistent use of misleading advertising and marketing, ignoring requests for information from the regulator and using high-pressure sales techniques or cold-calling in person.
In some cases the companies under scrutiny were being run by people with criminal convictions for fraud.
Some of the most common misleading claims used by the firms were statements declaring that 80% of credit agreements were unenforceable, or that all of a consumer’s credit card debts could be written off in less than a few weeks. Some companies even claimed to buy the consumer’s debt from them for a token payment of a pound, but would then charge hundreds of pounds to assess their accounts.
Reputable debt advice organisations have been quick to distance themselves from the practices of unscrupulous claims management and personal injury firms.
Ivan Cooper, Chairman at debt management specialists Chiltern said: “The debt advice that these companies give has been found to be misleading by the Ministry of Justice, but the victims of these scams who are already suffering from debt problems are left further out of pocket.
“What’s more, they are then less likely to trust other reputable debt management companies, and less likely to seek proper impartial debt advice.
“As a result, outstanding balances could be ignored and debt problems could be left to get worse.”
The closures of the illegitimate companies form part of a wider crackdown on claims companies that mistreat or mislead customers.
Kevin Rousell, head of MoJ regulation, said: “People desperate for a way out of their financial troubles can be vulnerable to the misleading marketing that the Ministry of Justice claims management regulator is continuing to tackle.”
He also stated that the MoJ would continue to enforce strong action to deal with claims management companies that disregarded the rules and the interests of the public.