Simon Read: Cracking down on claims management firms

The net seems to be closing on claims management companies as the authorities are finally getting tough with them. Claims management companies are the firms which advertise widely on daytime television and in down-market newspapers with promises that people can write off their debts or claim compensation from credit card companies and banks through some legal loophole. The Ministry of Justice recently announced an investigation into the work of one of the most vocal claims managers, Cartel Client Review.

Then, on Thursday, a firm of solicitors that worked for Cartel was shut down by the Solicitors' Regulation Authority because of "suspected dishonesty". The authority closed the Manchester office of a firm of lawyers called Consumer Credit Litigation Solicitors (CCLS) which worked almost exclusively for Cartel Client Review. The Authority acted over concerns that CCLS had not been acting in the best interests of clients whose business had been passed to it by Cartel.

According to reports the law firm had "tens of thousands" of customers' files, "which just seem to have been put in boxes". Around 100 staff hadn't been paid for weeks, and most have simply walked out on the firm.

The SRA said customers of CCLS would receive letters asking them what they wanted to do with their files. Customers are advised either to get in contact with Cartel, to see if the firm can arrange alternative legal advice, or to find another solicitor themselves to pursue their case.

Alternatively they could take it as a sign that their case has no real merit. The problem with the whole claims management industry is that many firms seem to have been simply set up to take money away from struggling borrowers through fat fees. Even charging people a "nominal" £50 for looking at their case, as some firms have been known to do, can net thousands of pounds of profit if they can attract enough punters.

I'm not suggesting that's the case with Cartel. I'm more than happy to leave the Ministry of Justice to conduct a proper investigation of the company and leave it to the authorities to act accordingly. However it was interesting to hear on a recent report on BBC Radio 4's Money Box programme that there has been an increasing numbers of complaints about Cartel from people who said they had paid their £495 fee but had heard nothing more. Many said they had been unable to get their money back from Cartel.

The MoJ said this week: "We are continuing to actively investigate Cartel." I hope that the investigation is moving along quickly and that people who have had dealings with the firm do get their cash back.

In the meantime there are plenty of other firms that continue to sucker people in with false promises of big payouts.

For anyone that does have a gripe against a financial firm it does seem a waste of time going to a claims management company. In fact, rather than risking ruining your case by dealing with some dodgy claims management firm, you can get free help and advice at your local Citizens Advice Bureau. Experts there can quickly tell you if you have a claim for compensation or not against a financial firm.

In the past I have mentioned the moral issue of people trying to wriggle out of debts that they have built up. My view has been that anyone who spent out on plastic or borrowed money from a bank should do whatever they can to pay the money back.

However there are hundreds of people on a very active internet message board who have successfully taken on banks and other financial institutions to reclaim charges or have debts written off. Their stories make fascinating reading and have made me think again about the issue of wriggling out of debt.

What I've learnt from the members of the Consumer Action Group is that many people have been treated very badly by banks and other lenders through excessive fees or unnecessary charges. For them, you can't help but cheer when they get their debts written off or compensation paid out. And for anyone in a similar position I would recommend visiting the website at www.consumeractiongroup.co.uk.

As well as plenty of stories of posters' experiences, there's a wealth of advice for anyone facing debt problems or wanting to take on their bank. I'm willing to bet that anyone spending a few minutes on the site will end up better off than if they spend time dealing with a claims management company.