Financial Services Bill

Lord Kennedy of Southwark Excerpts

Monday 26th November 2012 Lords Chamber

Moved by

[Lord Kennedy of Southwark]

101A: Clause 38, page 126, line 21, at end insert—
“( ) The Treasury or the Secretary of State may by order amend Schedule 17 to FSMA 2000 to require a scheme operator acting under the Schedule to make rules relating to the behaviour of a person who has entered into an agreement with a complainant to represent the complainant with respect to a complaint under the compulsory jurisdiction, the consumer credit jurisdiction or the voluntary jurisdiction pursuant to which any fee has been, will be or may be paid by the complainant.”

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[Lord Kennedy of Southwark]

My Lords, in moving Amendment 101A as one of the three amendments tabled in my name on the Marshalled List, I hope that all noble Lords will agree that something now needs to be done. Whenever I raise the issue of claims management companies in the House, I always say that many of them act responsibly and fulfil an important role. If people want to use them, that is their prerogative. On the mis-selling of payment protection insurance, it was the banks that mis-sold these products to their customers, not the claims management companies. It is also true to say that if the banks were more upfront about what they had done, then the room for these companies to operate would be greatly diminished and more money would end up in the pockets of consumers who had been mis-sold the products rather than in the hands of the CMCs, which can take up to 30% of someone’s successful claim.

My amendment states:

“The Treasury or the Secretary of State may”—

I emphasise the use of “may”—

“by order amend Schedule 17 to FSMA 2000 to require a scheme operator acting under the Schedule to make rules”.

If the amendment is accepted we would not be forcing the Government to do anything that they do not want to do themselves. We are merely giving them the power to do something in the future if they want to do so. Amendments 101B and 101C are more prescriptive and in both cases use “must”. I would be delighted if the Government would accept them, but today I am offering them a version using “may”.

The amendment using “may” could be all that is needed. It would give the Government another string to their bow so that they could say even more forcefully, “Look, we believe in self-regulation in this sector, but there is considerable concern about the practices of some CMCs. As an industry, you need to get your act together, clean up the bad practice and deal with those who are making the industry look bad for all of you. If you do not get a grip, we are going to make sure that regulations are in place to ensure that you all act responsibility. So let us be clear: we have taken the required powers to enable us to do this, and we can act quickly if your industry fails to do so”. That may be all that needs to be done if the industry regulates itself properly.

Why is this amendment needed? It is simple. What is in place at the moment is not robust enough. The part of the industry that needs to get its act together will presently breach guidelines on cold-calling, text messages and email messages, it will fail to disclose properly the amount of compensation, and the consumer will have to pay if the claim is successful. We have all had the nuisance calls and text messages. I have seen firms at my local shopping centre telling people that they will get them thousands of pounds in compensation. When I asked a question recently on text messaging, the noble Lord, Lord McNally, accepted that the range of bodies involved on different aspects may be part of the problem in ensuring effective regulation.

Other types of bad practice include companies that bombard a whole raft of financial institutions with PPI claims on behalf of the customer, not even bothering to check whether the consumer ever had dealings with that particular institution before submitting the claim. What does that do? It wastes the time and money of the financial institution concerned and it diverts resources away from dealing with the genuine complaints so that consumers have to wait even longer to get their cases dealt with. After dealing with the financial institution, or in some cases not even bothering to go to the financial institution, all claims are submitted to the Financial Ombudsman Service, which again wastes time, costs everybody money except the CMCs concerned and makes genuine complainants wait even longer to get their complaint dealt with.

In conclusion, I hope that the Government will accept this amendment. As I said at the start, it should cause them no problems whatever. It compels them to do nothing they do not want to do themselves. It just says “may”, and that may be all that is required. I beg to move.

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[Lord Newby]

My Lords, clearly there are serious conduct problems among a minority of claims management companies. Nobody denies that. We are all too well aware that the reaction of the claims industry to the mass mis-selling of payment protection insurance has also brought with it a fall in compliance standards and an increase in poor practices, to some of which the noble Lord, Lord Kennedy, referred. He said that something needs to be done. Something is being done. The claims management regulator is taking forward a programme of reforms which are due to be implemented next year. These include a ban on claims management companies offering financial rewards or similar benefits as an inducement to make a claim; tightening the conduct rules so that the requirements of authorisation are made clearer and protection for consumers is strengthened; and extending the role of the Legal Ombudsman to act as an ombudsman for consumers with complaints about claims management companies, which I think deals with some of the points that were made about the ombudsman.

However, we will continue to require a robust and co-ordinated approach from both the claims management regulator and the FCA in responding to risks of detriment. That starts with the financial services regulator. Lessons have been learnt from PPI. The FCA will have an objective requiring it to intervene earlier to prevent detriment arising and, where mass detriment is occurring, use its powers to establish or agree redress schemes so that affected customers are proactively contacted and compensated. We have seen the FSA already moving much more quickly to agree redress schemes with the major banks in relation to the interest rate hedge mis-selling.

However, where CMCs have a role to play, consumers already seeking redress need to be protected against further detriment. So we will see the claims management regulator stepping up its approach and resources devoted to tackling the underlying problems that exist in the conduct of some CMCs. We have already seen the establishment of a specialist PPI compliance team at the claims management regulator. To ensure that the regulator is sufficiently funded going forward, the MoJ is proposing to increase fees levied on CMCs, particularly those operating in the financial products and services sector.

However, I am not convinced that institutional reform is necessarily the answer. At the moment, it could represent a distraction from the task at hand, particularly given everything else that is happening in changing the financial sector regulatory architecture. It is important to remember that CMCs operate in a number of sectors, not just financial services. In fact, personal injury remains the largest sector. PPI is a very significant sector currently, but the next wave of activity and potential detriment may come from another sector. As I have said before, we do not think that it is appropriate for the FOS to act as a quasi-regulator, as the amendments propose. That would detract from its role as an independent ombudsman. It is simply not what an ombudsman does. That is why it does not matter whether the clause says “must” or “may”. Our objection is not about that; it is that an ombudsman is not the right person to act as a quasi-regulator. The regulators do that. The ombudsman looks at particular claims of mistreatment.

Amendment 101A would simply provide an enabling power. However, it is making a proposal in terms of institutional change which we think is inappropriate. That is not to say that the Government are complacent in any respect about the need to do more in terms of the regulation of CMCs. The range of activities that I have mentioned gives us cause to believe that we will see a very significant increase in the effectiveness of regulation in the period ahead. In the light of that, I hope that the noble Lord will feel able to withdraw his amendment.

[Lord Kennedy of Southwark]

I thank all noble Lords who have spoken in this short debate. I thank my noble friend Lord Eatwell and the noble Lord, Lord Hodgson of Astley Abbotts, for their support. The Minister’s response was very disappointing. He knows that I have pursued this matter for some time now. Yes, some action may be taking place, but the problem is that the rules in place are inadequate and are not properly enforced. Nothing that the noble Lord has said today in his response has convinced me otherwise. In that case, I should like to test the opinion of the House.