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The Parliamentary Under-Secretary of State for Justice (Mrs Helen Grant)
It is a great pleasure to serve under your chairmanship, Mr Walker. I congratulate my hon. Friend the Member for Thurrock (Jackie Doyle-Price) on securing this debate on the regulation of claims management companies, or CMCs.
I acknowledge at the outset that some CMCs can provide a useful service for some consumers, by alerting them to circumstances in which there might be a justified complaint, and by supporting them in obtaining redress. Nevertheless, a notable minority fail to comply with many of the simple requirements placed on them. As my hon. Friend the Member for Thurrock, the hon. Member for Dumfries and Galloway (Mr Brown), my hon. Friend the Member for South Derbyshire (Heather Wheeler), the hon. Member for Makerfield (Yvonne Fovargue) and my hon. Friends the Cardiff North (Jonathan Evans) and for Warrington South (David Mowat) have made clear today, malpractice continues, including in such areas as lack of transparency about fees; unfair contract terms; encouraging frivolous claims; insurance fraud; using aggressive marketing techniques; accepting leads or claims from unsolicited text messages; and malpractice in the handling of PPI claims. That is the type of behaviour that we are committed to eradicating. We all want a stable and robust regulatory system on which the public can depend, and we also want consumers to get claims services that meet their needs, from CMCs they really can trust.
Although substantial progress has been made since regulation began, there is clearly more to be done. I have listened carefully to the various thoughts and ideas that have been raised today in an informed and considered manner, and I would like to reassure the shadow Minister, the hon. Member for Hammersmith (Mr Slaughter), that I will listen carefully to everything and everyone I need to, including claimants and all other stakeholders. I am glad he has indicated that there is consensus on many of the issues that we need to address.
Providing consumer protection by driving out malpractice remains the primary objective of the Ministry of Justice’s claims management regulation unit, and we support that approach. Most CMCs want to comply, which is why the CMR unit uses a range of measures to help them to do so. For example, about a year ago the unit formed a specialist compliance team to focus on tackling the mishandling of PPI claims. The team has conducted a comprehensive programme of audits, and has issued warnings and taken other forms of enforcement action where problems have been found. That work continues, and includes targeting CMCs that submit claims where no PPI sale exists, those that charge up-front fees—we have heard a lot about that today—and those that operate call centres, to ensure that sales calls are compliant.
Within the personal injury sector, most of the issues relate to businesses or organised groups attempting to defraud the insurance industry. The CMR unit contributes valuable information and expertise, and has worked with a range of organisations and agencies to tackle fraud. Its operations have resulted in arrests, charges and convictions.
On unsolicited text messages, notably raised by Lord McNally of Blackpool on Monday in the House of Lords, and by my hon. Friend the Member for Thurrock and other Members today, I recognise that the growth in the practice has caused a nuisance to the general public, particularly as the content of the messages is often misleading. The problem presents big challenges, and we fully support the work of the Information Commissioner’s Office, or ICO, in enforcing the legislation that protects individuals from unsolicited text messages and other forms of direct marketing. It is important to point out that such messages are generally sent not by CMCs but by others, to generate leads for others businesses including CMCs. The CMR unit is actively working with the ICO to investigate and take enforcement action against CMCs that accept leads or claims from that type of marketing.
Jackie Doyle-Price
The Information Commissioner has said that unsolicited texts are a breach of the EU regulations on electronic communication. Will my hon. Friend investigate, with the Information Commissioner, whether there is a resource issue regarding his tackling this activity, which is such a nuisance to consumers?
Mrs Grant
We are working hard with the Information Commissioner, and I am happy to write to my hon. Friend on that point.
At a time when resources are scarce, much has been achieved. Regulatory enforcement action has increased year on year, with 150 audits of CMCs carried out, and 409 CMCs warned, suspended or cancelled over the past year. The CMR unit has also removed the licences of more than 800 CMCs, across sectors, since the start of regulation in 2007, and many others have left the market after the commencement of investigations and enforcement action.
That is where we are at, but where do we go from here? There have been calls over the years to consider transferring the claims management regulation regime to another regulator, but now is not the time for such a fundamental change. We have a big programme of reforms under way, and its central objective is to address CMC bad practices and strengthen the regulatory and complaints regimes to provide better protection for consumers and the public. Our reform agenda includes four main measures.
Following a review of the CMC conduct rules and an informal consultation with key stakeholders, we recently ran a public consultation on proposals to tighten those rules. We intend to issue a response by the end of this year. Most critically, we propose that, first, contract agreements between CMCs and consumers will have to be made in writing before any up-front fees may be taken. That concern was raised by my hon. Friend the Member for Thurrock and others.
Secondly, as highlighted by my hon. Friend the Member for Cardiff North, CMCs will have to refer to being regulated by the claims management regulator rather than the Ministry of Justice. The shadow Minister welcomed that proposal.
Thirdly, CMCs will have to inform their contracted client of any variation in or suspension of their authorisation; and, finally, CMCs that operate websites will be required to publish their terms and conditions online as standard, including examples of how their various costs are calculated in a specific format.
On the delay to the rules review consultation, which was raised by my hon. Friend the Member for Thurrock, I can confirm that the consultation was launched as soon as possible after internal clearance of the intention to consult and the release of the initial impact assessment.
Last year, we also ran a public consultation on imposing a ban on CMCs offering financial rewards or similar benefits as an inducement to make a claim. That proposal was made in response to the recommendation contained in Lord Young’s report “Common Sense, Common Safety”. The ban will come into effect along with other amendments to the conduct rules from April 2013.
From next year, we intend to commence powers under the Legal Services Act 2007 to extend the legal ombudsman’s jurisdiction to provide an independent complaints and redress scheme for clients who are dissatisfied with the service provided by CMCs that they have contacted. Consumers will benefit because the legal ombudsman has wider powers of redress, including the ability to award compensation.
Lastly, we are implementing the primary recommendations contained in Lord Justice Jackson’s “Review of Civil Litigation Costs,” including in particular a fundamental reform of no win, no fee conditional-fee agreements and a ban on the payment and receipt of referral fees in personal injury cases.
Mr Slaughter
How will restricting the ability of claimants to obtain proper legal representation restrict the operation of CMCs that either make unmeritorious claims or make meritorious claims incompetently?
Mrs Grant
We are not restricting access to justice in any way. That is another argument I have had with the hon. Gentleman in other debates over the past year and a half. Access to justice will still be possible and meritorious claims will continue to be made.
I have sought to cover a lot of ground in a relatively short space of time, and I have talked through improvements in the way the CMR unit does its day-to-day job and its work in preparation for next year’s reforms. We remain focused on delivering a successful and strong regulatory regime. To give consumers and defendants more confidence in the system, it is important that CMCs ensure that they comply with the rules.
I reassure all hon. Members here today that there will be no let up in the CMR unit’s compliance and enforcement work, and it will do what is essential to strengthen the regulatory and complaints regimes to provide better protection for consumers and the public.