Why is Scotland an oasis for claims cowboys?

Consumers in England and Wales will be able to seek redress for poor claims management service via the legal Ombudsman from next year. But this change won't apply in Scotland. Mike Dailly (right), principal solicitor at Glasgow's Govan Law Centre, asks why Scots will be at the mercy of "cowboys"...

Claims management companies (CMCs) are everywhere. They advertise widely and aggressively, and frequently engage in cold calling or cold texting about your "entitlement to compensation for a personal injury" or "your PPI (payment protection insurance) refund".

There will soon be a system in place to help consumers get redress via an independent arbitrator, but only in England and Wales. Victims in Scotland are still at the mercy of some cowboy operations.

And the blame for failing to give Scottish consumers the protection they deserve against these vultures lies squarely at the hands of the Scottish Government.

CMCs will often take upfront payments over the telephone for their services, and/or expect to take 25% (plus VAT) of any money they recover for you. In the case of PPI, that's your money.

CMCs take a big cut of anything they can get their hands on. Not just accident, PPI or financial services claims, but also criminal injuries claims, employment law, industrial injuries disablement benefit and housing disrepair claims.

Claims firms abuses

Many CMCs are well known for malpractice and ripping consumers off. The list is long: not providing customers with contracts or paperwork, not allowing cancellation of their service or refusing to allow any refunds.

Also misleading and exaggerating their success or service during sales calls, taking payments from customers' bank accounts or cards without authorisation, and using third parties to engage in unsolicited marketing.

If you are ripped off by a CMC, obtaining redress is exceedingly unlikely.  This is why from next year, the Legal Ombudsman will be empowered to handle consumer complaints against CMCs, but only in England and Wales.  The Ombudsman will be empowered to award compensation up to £30,000.  

Why only England and Wales? Because the Ministry of Justice (MoJ) only regulates CMCs under the Compensation Act 2006 for services provided in England and Wales. Interestingly, the MoJ is currently consulting on toughening up its regulatory regime so that proper written consumer contracts would be mandatory before any money could exchange hands.  A good and welcome change to the English rules.

But what protection does Scots law offer to customers of CMCs north of the border?  It's zip, zero, nada, nowt, nothing at all.

'I blame the Scottish Government'

The curious thing is the Scottish Government ran a consultation covering the issue back in 2009. This was as a precursor to the Legal Services (Scotland) Act 2010. 

Some 85% of respondents believed it was necessary to introduce legal protection for Scottish consumers, with a significant number reporting an awareness of poor practice by CMCs in Scotland.

Notwithstanding the Scottish Government's own consultation responses, no action was taken.  At Stage 1 of the Legal Services (Scotland ) Bill the Scottish Government stated it had "no fixed position" on CMCs that operated on a 'no win no fee' basis.

An attempt was made at Stage 2 of the Bill to introduce an amendment to enable regulation of CMCs dealing in employment law services in Scotland, by Labour MSP Richard Baker. However, that was defeated.

Accordingly, while consumer protection is being strengthened south of the border, and is roundly welcomed by all consumer and advice bodies, Scotland remains an oasis for CMCs to do as they please.

It's an unregulated market, where the people of Scotland will have no redress or protection against CMCs, because the Scottish Government has, to put it simply, failed to act.

Views expressed do not necessarily reflect those of MoneySavingExpert.com.