Baroness Verma
My Lords, I begin by thanking the noble Lord, Lord Kennedy, for giving us this opportunity to debate such a topical subject. I thank the noble Lord and other noble Lords for their constructive contributions. I would also like to congratulate him on his dedication and commitment towards highlighting the serious issues that concern consumers. I am very pleased that the meeting that he had with my noble friend Lord McNally at the MoJ resulted in a satisfactory outcome. Of course, we are minded that the protection of consumers using the services of claims management companies is clearly an extremely important matter, as is the efficient handling of consumers’ claims. Much has been done to drive out bad practice in the claims industry, and we are committed to doing more. I am very pleased, therefore, to inform your Lordships’ House what action we are taking in this area and I hope to touch on some of the areas of concern that noble Lords have raised today.
It may be helpful if I first set out the existing conduct rules which claims companies must follow. The rules focus on consumer protection and require companies to give consumers clear, honest and comprehensive information about the options available for pursuing their claim, including self-help, and the associated costs and risks involved. The intention is that consumers should always be in a position to make an informed choice—an issue that was raised across the House. There must be no high-pressure selling, no hidden charges and no misleading marketing. All claims companies must have a complaints procedure to deal with any customer problems. Companies that breach these rules will face investigation and firm enforcement action, which can range from warnings to restrictions being added to their licence and ultimately suspension or cancellation of their licence.
Substantial progress has been made since the claims management regulation regime was introduced in 2007. Practices such as misleading advertising and marketing, and hidden costs, have been targeted and greatly reduced. Cold calling in person and unauthorised marketing in hospitals have been eliminated, unfair contract terms have been removed, and complaints handling has been improved. To date, the unit has removed the licences of more than 700 claims management companies, suspended or imposed restrictions on their licences and threatened many more with such action. As my noble friend Lord McNally stated in response to a recent Parliamentary Question from the noble Lord, Lord Kennedy, 260 claims management companies lost their licences between April 2011 and March 2012. There will be no let up by this Government in going forward. We realise and recognise that more must be done to tighten up practices. Therefore, we are developing proposals to amend the conduct rules for claims companies and a public consultation is planned for the summer. I hope that noble Lords will assist in that consultation.
The Government are committed to taking a robust approach to tackling those companies that appear to be involved in malpractice right across all sectors of the industry. As noble Lords have highlighted, the practices of some claims companies operating in the payment protection insurance claims sector have been a cause for concern. This sector continues to present challenges for us, and, of course, we recognise that there is much more to be done. However, we cannot ignore the progress that has been made by the Claims Management Regulation Unit in ensuring that claims companies remain compliant. The unit has established a specialist compliance team to focus on tackling the poor practices used by some companies when presenting claims for mis-sold PPI. Since its inception in November last year, the compliance team has already conducted more than 50 audits, issued seven warnings and taken other forms of enforcement action where problems have been found. This work continues and includes targeting those companies submitting claims where no PPI sale exists, those charging upfront fees and those operating call centres to ensure that sales calls are compliant.
The unit is working with the Financial Ombudsman Service, the Financial Services Authority, major banks and credit card providers to help identify non-compliant companies and improve the claims process for consumers. The unit is also encouraging the development of mechanisms for improving the banks’ relationships with compliant claims companies. The intention is to help streamline the PPI claims process for consumers who choose to use them and minimise the burden on the banks. Last year, the unit issued joint guidance with the Financial Services Authority and the Financial Ombudsman Service on best practice when handling claims for mis-sold PPI. The unit produced guidance for consumers, advising them to shop around for the best deal and never to pay an advance fee or agree a verbal contract without seeing the offer in writing first. The guidance also makes consumers aware that there are self-help alternatives to using a paid representative to make a PPI claim.
The Information Commissioner’s Office is aware of issues in relation to claims and unsolicited marketing and believes that the existing legislation and regulatory environment are adequate in seeking to protect individuals from all such kinds of marketing, not merely those related to claims services. However, I very much take on board the concerns that have been raised and I and my officials will take them back to the department. The Information Commissioner’s Office is responsible for enforcing the Privacy and Electronic Communications Regulations 2003, which protect consumers from unsolicited text messages and marketing calls. It has a significant suite of powers with which to investigate and take enforcement action where the regulations have been breached. These include the power to issue a monetary penalty of up to £500,000 and to require communications service providers to disclose the identity of third-party users of their networks. The Information Commissioner is putting more resources into tackling this problem and we are providing assistance as necessary. The Ministry of Justice’s Claims Management Regulation Unit has formed an effective working relationship with the Information Commissioner that enables a fruitful exchange of intelligence. Both regulators are now seeking to build on this by establishing a memorandum of understanding, which will set out a basis for sharing information and intelligence to help them carry out their regulatory functions. This should be finalised soon.
The Claims Management Regulation Unit is already investigating individual claims companies believed to be involved in commissioning and receiving the leads generated from text messages and automated calls. The main investigation challenge is identifying who is responsible for the texts and building up sufficient evidence of abuses to take enforcement action. Unsolicited texts and marketing calls can be made by a range of companies, as my noble friend Lady Scott highlighted, some of which are based overseas. These include lead generation companies, data companies and illegitimate companies. The Information Commissioner and the Claims Management Regulation Unit are members of a cross-regulator and industry working group established to pool resources, share intelligence and mount a more effective campaign of joined-up action to try to eradicate unsolicited text messages and automated calls. Other members of the working group include Ofcom, the Office of Fair Trading, the Direct Marketing Association and the mobile marketing industry, including network operators.
I hope noble Lords are reassured that there already exists a robust regulatory environment to deal with this problem. However, I acknowledge their concerns about the fees charged by claims management companies. Transparency is a key requirement of the conduct rules which all claims companies are required to follow. Their fee structure should be clear, transparent, fair and not misleading. Reasonable inquiries should be made as to whether prospective clients have alternative means for pursuing a claim and claims should be pursued only where it is in the interests of the client to do so. While most claims management companies do not charge upfront fees, those that do must provide the key facts in writing.
In conclusion, I have outlined some of the main actions we have taken and our commitments going forward to driving out bad practice across the claims industry. I hope these reflect the Government’s determination to ensure that the regulatory burden placed on claims management companies continues to be effective in protecting consumers. My noble friend Lady Scott asked about trade bodies representing claims companies. The Claims Management Regulation Unit in the MoJ has considerable contact with trade bodies representing claims companies. We will continue to work closely with them to raise standards. The noble Lord, Lord Kennedy, referred to training. I will take back that interesting thought because there is merit in seeing consistency across the sector. My noble friend asked about further discussions with the MoJ. I am very happy to take that back to the MoJ to see whether a meeting can be set up with noble Lords who are interested in this issue.
As the challenges get harder, the importance of effective joined-up approaches and enforcement operations cannot be stressed enough to ensure that not only are more claims management companies operating in the consumers’ interest, but that all others involved in the claims chain are too. If I have missed any questions that were asked by noble Lords, I will be happy to write to them. I would like to put on record that we wish the noble Lord, Lord Young, a speedy recovery and very much hope that he is not bombarded with unsolicited messages.