In an effort to improve the image of the compensation claims industry the Ministry of Justice is considering banning cash inducements and similar benefits for claims from April 2011.

Rules regarding advertising and marketing by authorised claims management services are contained in the Client Specific Rules in the Conduct of Authorised Persons Rules 2007 that allow claims management companies to offer cash inducements after claims have been approved and vetted, though they don't allow upfront cash inducements.

The current Rule 6 states:

"In soliciting business through advertising, marketing and other means, a business must: b) Not offer an immediate cash payment or a similar benefit as an inducement for making a claim."

For example, statements such as '£150 immediate cash payment' are prohibited.

Access Legal from Shoosmiths partner Zarina Ahmed said: "Claims management companies are trying to be clever with their advertising, but there's a danger that the public can be misled, or their expectations not managed.

There are examples of claims management companies currently offering upfront cash payments with no deductions, no fees, and no refund. But the same advertisement could state in small print and/or on a separate part of the page that the payment is within a number of days of case vetting and acceptance.'

Lord Young was commissioned by the Prime Minister to review the growth of the perceived compensation culture in England and Wales over the last decade. Lord Young's report – Common Sense, Common Safety – was published in October 2010.

Lord Young felt the promotion of inducements to encourage consumers to make a claim were problematic and should be stopped. He felt high pressure cash inducements gave victims the impression that they'd be entitled to handsome rewards. The compensation culture in Britain is fuelled by media stories about individuals receiving large payouts for personal injury claims.

In order to address the concerns in Lord Young's report, the Ministry of Justice has decided to consider and implement appropriate amendments to Client Specific Rule 6 (b) of the Conduct of Authorised Persons Rules 2007.

From 23 December 2010, the Ministry of Justice put forward a consultation to all claims management businesses throughout England and Wales regarding a proposal to amend the rule to prohibit the offering of cash payments or similar as an inducement to make a claim.

The consultation paper states that the majority of businesses are not likely to be affected, as around 5% currently offer financial rewards or other non-returnable bonuses as an inducement to make a claim.

However, the overall benefit would be a move away from the perceived compensation culture in England and Wales, a stronger regulatory regime, and improved quality and content of the industry's advertising and marketing output.

The new Rule 6 (b) is aimed to prevent claims management businesses from offering any client a financial or similar inducement for making a claim at any stage throughout their dealings with a client and would state:

"In soliciting business through advertising, marketing, and other means a business must: b) Not offer any cash payments or similar benefit as an inducement for making a claim."

The proposals are to be implemented in April 2011.

The consultation paper does deal with some other amendments. Views have been invited from anyone with an interest in the subject covered by the paper. Responses must be sent to the Ministry of Justice by 10 February 2011.

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