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?