Financial Services Bill

Lord Whitty Excerpts

Wednesday 28th November 2012 Lords Chamber

Moved by

[Lord Whitty]

116AA: After Clause 102, insert the following new Clause—
“The levy
(1) Section 173 of the Legal Services Act 2007 (the levy) is amended as follows.
(2) In subsection (7)(a) at the end insert “except for the purposes of section 161 (in relation to claims management services) which is to be deducted from its expenditure incurred under or for the purposes of the Act (section 173(7)(a), as with the amounts paid into the Consolidated Fund pursuant to 173(7)(b)), and”.”

[Lord Whitty]

My Lords, this is a technical amendment to cover a gap which I would have hoped the Government would have covered by now. It is an amendment to the Legal Services Act 2007 and it deals with complaints from consumers about the activities of claims management companies, about which we have heard a fair amount in this House, particularly at the initiative of my noble friend Lord Kennedy of Southwark.

The purpose of the amendment is to enable the Office for Legal Complaints, that is to say the Legal Ombudsman, to receive payments from the Lord Chancellor under Section 172 of that Act for its costs in relation to handling complaints against those claims management companies.

There has been a pretty widespread air of complaint in this House and in wider society about the activities of claims management companies. Citizens Advice has identified a whole range of problems in this area, from the time and resources wasted on invalid claims through to the aggressive, intrusive and often offensive methods of marketing. I suspect most noble Lords have received an odd text within the past few days, offering them untold riches under the PPI arrangements. It is not just consumer groups that want action on this front. The FLA—the Finance and Leasing Association—would look for an improvement to CMC regulation and, in particular, the tens of thousands of unfounded claims received from CMCs in respect of products which, as we all know, were never sold in the first place. This is a huge irritation which is misleading for consumers and diverts activity for providers, so we need a complaints system which is recognised as robust by consumers and providers alike. We want the Legal Ombudsman service to be able to accept complaints against claims management companies that breach the regulation.

Following discussion on several occasions in this House, the Minister has assured us that regulation is being tightened up to stamp out some of the more horrendous practices that we have heard about and, indeed, been subject to. One of these assurances was in relation to access to redress for consumers. The Government announced on 28 August that complaints handling companies would be handled by the Legal Ombudsman, using the powers under the Act to which this is an amendment. That was repeated by the Minister on 20 November in response to a debate introduced by my noble friend Lord Kennedy. However, I now understand that, due to the Government’s decision to leave claims management regulation within the department —as distinct from an outside regulator—the provisions that would have allowed the Legal Services Board to levy the claims management regulator for Legal Ombudsman expenditure are now deemed unworkable.

The amendment therefore seeks to remedy that position. It allows the Lord Chancellor—in other words the Ministry of Justice, which is, effectively, the claims management regulator—to make payments direct to the Legal Ombudsman without any subsidy by existing ombudsman levy-payers, who are lawyers and are not, of course, party to these complaints.

My understanding is that such money would need to come from a levy on claims management companies rather than the general taxpayer—quite right, too—and that the only effect of the amendment would be to allow the only body with authority to levy them, the Ministry of Justice, to pass such funds to the Legal Ombudsman. Despite this being a levy on these firms, the Treasury has stated that, under the Legal Services Act as currently drafted, the Secretary of State as the regulator of claims management services cannot be designated a leviable body for Legal Ombudsman purposes. The levy is technically considered a tax, and thus a public body, the Legal Services Board as the collector of the levy, cannot impose a tax on government.

It is for this reason that primary legislation to amend the Act is needed. I hope that the Minister, who is supportive of action on this front, can support the amendment. The legislative change that is needed to facilitate it must happen immediately, so that consumers are not left without a course of redress. This is necessary so that the ombudsman can handle complaints as well as provide better intelligence to the regulator and the industry to drive better practice.

Amendment 120, which complements the first amendment, would allow the technicalities to come into force immediately on Royal Assent without further, secondary legislation being required. It seeks to cover a gap in the present arrangements. The Minister may have a better way of so doing. If so, it is a pity that he has not come forward with it already. Nevertheless, I am prepared to hear what he says. If he is prepared to bring forward an alternative amendment which covers the same points at Third Reading or ensures that there is provision for the Legal Ombudsman to be financed in this way, I will probably be prepared to withdraw the amendment. However, it is a gap that needs covering. At this relatively late stage of the Bill, a commitment from the Government to do so is necessary. I beg to move.

[Lord Newby]

My Lords, as the noble Lord, Lord Whitty, said, the amendment seeks to amend the Legal Services Act 2007 to facilitate the expansion of the Office for Legal Complaints ombudsman scheme to encompass the handling of complaints about claims management companies, on which we have spent considerable time while discussing the Bill in your Lordships’ House. I understand that its specific aim is to prevent any costs incurred by the OLC in respect of claims management companies being passed on to the wider legal services profession.

The Government have announced that the OLC will assume responsibility for the handling of claims management companies next year. They stand by that commitment. I agree with the noble Lord that it is important for consumers of claims management companies to have greater access to redress when things go wrong. As a result of the Government’s policy, the OLC will be in a position to provide more meaningful forms of redress, including compensation up to £30,000 if appropriate. This compares with the current arrangements, under which the regulator can only direct businesses to apologise, redo work and, in limited circumstances, provide a full or partial refund of fees. In addition, the OLC will be able to use the feedback from complaints that it receives to assist the claims management regulator in driving up standards within the sector.

I understand the desire to implement this change as soon as possible given the proliferation of complaints about the conduct of this sector, but we are very concerned to get it right. That means ensuring that the necessary funding, regulatory and operational arrangements are in place before we commence the provisions in the Legal Services Act 2007. This amendment would not achieve that outcome. For example, it is right that the wider legal profession should not cross-subsidise claims management companies. Conversely, we need to ensure that legal firms do not gain any unintended benefit when the Legal Ombudsman assumes its new powers. Under this amendment, the wider legal profession would benefit because case-fee income generated by the ombudsman in respect of claims management companies would be deducted from the levy they have to pay.

The Government’s position, then, is absolutely clear: the wider legal profession should not bear the cost of dealing with complaints about that sector. On this we are in agreement with the noble Lord and the arrangements we put in place will be consistent with that principle. I reiterate our commitment to implementing the changes in 2013 and I hope, therefore, that the noble Lord will feel able to withdraw his amendment.

[Lord Whitty]

My Lords, I appreciate what the Minister said, but I am not quite clear how this then operates. We are at one in believing that the broader legal profession should not be levied for instances which relate to claims management companies—that is clearly a red line and it should be avoided—but in order to avoid it, the Legal Ombudsman, the OLC, will need to have some resources from a levy, or quasi-levy, from the CMC, unless this is to be a matter for general taxation, which would not seem to be appropriate and I do not think is the Government’s intention. Therefore, the Government need powers rapidly in order to have a levy system there, which presumably, as I said in my opening remarks, would have to be via the Ministry of Justice, even though the money would then be passed over to the OLC.

I am not sure what the Minister means when he says that we will sort this out in 2013. Does he mean that, while the other provisions of the Bill will apply, we will need further primary legislation; or does he mean that there will be almost instant secondary legislation under the Bill to ensure that that happens? Because one way or another, for that to be achieved by 2013, which is only about four weeks off—although I guess that he has the whole 12 months to fulfil his intention—a whole pile of complaints that are manifold at the moment will be held up for some months before they can go into the system and the Office for Legal Complaints will be able to deal with them.

I accept the Government’s good will and good intent in this respect, but I still think that the precise system on which it operates needs to be spelled out and that we need to be assured that it will be in place pretty much at the same time as the Bill is passed. I hope that the Minister can give that assurance; alternatively, he could come back with something else at Third Reading. I did not think that he went as far as that in his remarks.

[Lord Newby]

My Lords, I did not go as far as that, in terms of amendments at Third Reading, and I am not going to go as far as that now. As I said, the new system will not come into force immediately, but it will come into force during the course of 2013. I will write to the noble Lord if I am wrong about this, but my understanding is that the funding that is required from the claims management company sector, as it were, will come from the levy, which is being increased at the moment. If I am wrong in that, I will write to the noble Lord.

[Lord Whitty]

I appreciate that having it exactly at the point of Royal Assent is not necessarily the point; the point is that when these provisions come into play there will be resources to cover it. I would be grateful to receive a letter from the Minister and, with that, I beg leave to withdraw the amendment.

Amendment 116AA withdrawn.