CMCs - is the regulator failing to protect the public? | AccountingWEB

CMCs - is the regulator failing to protect the public?

In my earlier article Writing off your credit card debt? I concluded that "only a small proportion of customers will achieve 'success' in terms of having debts written off or obtaining refunds of payments made to lenders".

But a quick search of websites of some claims management companies (CMCs) will show that they continue to seek business and, in many cases, offer money back guarantees.

A CMC can only hope to be successful if a significant proportion of the claims it makes for customers are successful.  A failed claim costs the CMC in terms of administration and, at the least, the expense of an initial brief review of the paperwork.  That cannot be good business, especially if the CMC has to refund the fee it has charged.

So can the CMCs honour their money back guarantees?  I have had a look at Companies House records for a few CMCs. 

Credit Issues Ltd was incorporated in May 2008.  No accounts have been filed at Companies House and these are overdue.  Credit Issues describes itself as "a wholly owned subsidiary of Guardian Financial Group", which might be comforting, but the most recent accounts filed for that company are dormant company accounts for the period ended 31 December 2007.  Credit Issues offers a money back agreement subject to a £50 administration charge.

Unfair Credit Direct is operated by Individual Credit Solutions Ltd, a company incorporated in August 2008.  It has filed accounts at Companies House for period ended 31 August 2009 which show it had turnover of £593,000 and net assets of just £37,000; which does not offer much scope for calls on its 100% money back guarantee.

Cartel Client Review Ltd (Cartel) filed audited abbreviated accounts for the period ended 30 September 2008 showing liabilities exceeding assets by £560,000.

Claims management companies are regulated by the Ministry of Justice (MoJ) under the provisions of the Compensation Act 2006.  Cartel's authorisation however was suspended on 18 March which means the company cannot at present conduct claims management business. 

The company is reported to have been instructed on up to 70,000 cases - charging up-front fees of up to £495 per case - and is said to have received approximately £20 million in fees from customers.  The director of Cartel, Carl Wright, was recently quoted as saying, "The money is not available to be able to be refunded back to the clients".

The company website is no longer functioning - so I cannot include a link to it here - but Cartel did offer a money back guarantee should a claim be unsuccessful, subject to an administration charge of £11.

The auditors of Cartel are Grant Thornton UK LLP, Manchester.  Last week they confirmed to AccountingWEB that they are still auditors of Cartel but client confidentiality prevents them from commenting on the company's financial affairs.

Grant Thornton's report on the audited abbreviated accounts to 30 September 2008 (under section 247B Companies Act 1985) was entirely standard, making no mention of the company's Balance Sheet deficit.  However the accounting policies note refers to the deficit and the director's consideration of the appropriateness of the 'going concern' basis.  Curiously that refers to "deferred income [of £1,028,652 which] is anticipated to be released in the first quarter of the ensuing year".  That is curious because the accounts were signed off on 27 February 2009 - nearly two months after the end of that "first quarter of the ensuing year" in which the release "is anticipated".

Grant Thornton point out that the accounting policies note "is the company's disclosure rather than ours".  As a robust defence of their audit work on this occasion that comment perhaps leaves something to be desired!

Not all CMCs offer a refund of fees. But even dealing with these companies will represent a risk to the customer if the company does not have the resources to pursue through to completion a claim for which a fee has been paid in advance.

Beneficial Claims Ltd describes itself as "one of the industry's leading claims management companies".  But the company was incorporated as recently as July 2008 and has not yet filed any accounts at Companies House.

Ratio Money Ltd, incorporated in February 2007, has filed unaudited abbreviated accounts for the period ended 29 February 2008 which show liabilities exceeding assets by £195,000.  Accounts to February 2009 have not yet been filed and are well overdue.

So is the Ministry of Justice by continuing to authorise all of these CMCs (with the exception of the recent suspension of Cartel) a regulator which is failing to protect the public?


The modern way

Anonymous | | Permalink

Seems to be the modern way of doing business in the uk. Not filing accounts is a good way of evading tax etc and other actions as the authorities do not have the ability or resources to police the matter even if they wanted to.

If consumers are daft enough to buy false promises or goods and services from huge faceless corporations then perhaps they deserve to be ripped of. Perhaps some will learn their lesson! ah but then enter the blame someone else for your own stupidity culture ! The first step is admitting you were stupid which is a bit difficult if the auditors were really to blame.

Old Greying Accountant's picture

Tip of the iceberg really

Old Greying Acc... | | Permalink

I have a diet of adverts from these companies on the car radio to and from work and I get incensed. If you take out a loan or credit card you know the costs. It is the same as the ambulance chasing insurance companies and the public are so gullible as to fall for it. To try and twist out of liabilities on technicalities is morally reprehensible, same as the "celebs" getting off of speeding tickets etc.

The modern attitude is;

1. The banks/insurance companies can afford it and its not costing anyone anything!

2. Everyone else is doing it so why shouldn't I.

Which is a big part of why this country is dying on its feet. It is also part of why practising accountants are so under the cosh on tax avoidance. There is nothing wrong in arranging your affairs to minimise your tax burden, but there are always those who take this to extremes and contrive their circumstances to effectively being evading tax (led by example from the commons).




Anonymous | | Permalink

Is the regulator just a filing organisation like the other regulators ? Perhaps this is another oportunity for a public enquiry wheeze ! Creates some work for someone no doubt,

I assume that the model is based on chasing ones own tail faster and faster thus improving the circulation of money and the economic figures a little teemed and laded and you have a western economy!

think about it ! e.g. todays tax banked tomorrow ?

davidwinch's picture

Not 'just a filing organisation'

davidwinch | | Permalink

I think the Ministry of Justice would say that it is not 'just a filing organisation' in terms of the regulation of claims management services.

It would point out that it has, over recent years, cancelled the authorisation of more than 120 CMCs, and their head of regulation has recently been quoted as saying that he expects that number to "substantially increase" over the coming months.  Whether one should find that reassuring or alarming is a matter of opinion!

The MoJ suspends or cancels the authorisation of a CMC where, on investigation, it finds breaches of law or of the terms of authorisation (which may be general terms applying to all CMCs or special terms relating to a CMC about which there are specific concerns).

But there have been reports suggesting that the MoJ have been 'asleep at the wheel' and are allowing the public to be taken for a ride by some CMCs.

There have also been allegations of clear wrongdoing by some CMCs which, it is suggested, the regulator has failed to spot, investigate and act upon promptly and appropriately - despite receiving numerous complaints from the public.

The MoJ say that they have, and use, a number of measures in their regulation of CMCs, including private warnings.  They also say that investigations take time and that before suspending or cancelling an authorisation they need a 'watertight' case and need to be satisfied that suspension or cancellation would be in the public interest - taking into account the interests of existing customers of the CMC who may be cut adrift if the CMC is unable to continue to act for them.

Whether the MoJ consider whether, in general terms, a CMC is financially fit for purpose and able to deliver on its promises in relation to 'money back guarantees' is not clear.


Old Greying Accountant's picture

MoJ makes me laugh

Old Greying Acc... | | Permalink


There has always been a gap between law and justice, and with the current encumbents this has become a yawning chasm.

On top of which the AML legislation is just another brick in the guilty until proven innocent castle being built by this govenment.

It wasn't long ago exception reporting was the buzzword, I reckon that was banged up in the tower along with common sense years ago to be usurped by those interlopers blame culture and knee-jerk reaction!

Still be thankful for small mercies, we can at least post such comments (for now!) - ba wo jin ryh as they say in China!

 (apologies to Chinese readers if it doesn't say what I am led to believe it should!)


Why all the exitement

Anonymous | | Permalink

I really do not see why this is an important issue at all, those daft enough to part with their money up front are being taught an important lesson. Why is this area regulated at all, if the public never get their money back, what is the point.

There are many scams of this nature. E.g Rates review services, data protection services etc etc these are not deemed to be illegal.

Its a bit like reporting a crime to the police, who turn up to record it but then can take no further action.

surely this is awaste of everyones time and resources. One could argue we pay our council tax and get no service for it.


Anonymous | | Permalink

The action should be one of wrongful trading or fraudulent trading ?

Rather than you're for the naughty step and when would you like to start again, by filling in this form and paying the appropriate fee !

These organisations are still advertising on the TV ! and radio, when we have known for at least a year that the chances of wiping the debt was remote.

davidwinch's picture

Wrongful trading

davidwinch | | Permalink

Action for wrongful trading or fraudulent trading under the Insolvency Act 1986 only applies to a company being wound up and on an application by the liquidator.

If a company does not go through a formal liquidation process then those provisions cannot apply.

(But fraudulent trading provisions under s993 Companies Act 2006 can apply without a formal liquidation, if dishonesty can be proved.)


State inaction

Anonymous | | Permalink

Why does the state never instigate winding up procedures. I have always found this a mystery why they do not pursue the missing tax beyond the company.  A petition for winding up could be presented and the official receiver (useless as they are admitted) should pursue.

An assesment of tax should do it !

Hit them in their pockets I say.

At the moment it is becomming common knowledge (rife) that you can trade through a limited company not pay your tax , not file accounts ! companies house will strike you off and HMRC will close the file. This is happening with alarming regularity out here.

It is not just these types of companies, and HMRC will not listen.

cymraeg_draig's picture

stop them advertising

cymraeg_draig | | Permalink

In cases such as this, and with high interest money lenders, etc.  there really ought to be sweeping powers for someone, probably trading standards, to step in and put a blanket ban on all advertising. 

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