Claims Management Companies

Heather Wheeler Excerpts

Thursday 8th November 2012 Westminster Hall

[Heather Wheeler (South Derbyshire) (Con)]

Thank you for calling me to speak, Sir Alan. I thank my hon. Friend the Member for Thurrock (Jackie Doyle-Price) for securing this debate on the activities and regulation of claims management companies, and I apologise that I cannot stay until the end. I have students from Pingle school coming to see me at 4 o’clock, so I must leave, although perhaps we will have finished before then—I certainly hope so. This subject is of particular interest to me, as an officer of the all-party group on insurance and financial services. Our group has held many meetings with people involved in such issues, and I am delighted that my hon. Friend has secured the debate.

Claims management companies have grown considerably over the last five years. As we heard, in 2007, it was estimated that there were 400 CMCs, and today, there are over 3,000 subject to Ministry of Justice regulation. Such companies serve a purpose: people who have little time and have a claim can pay CMCs to work on their behalf to pursue claims for them. The huge number of PPI claims has been interesting, as PPI clearly has been one of the biggest financial mis-selling scandals ever. CMCs can now be used for personal injury claims, too. If people are time-poor, they should absolutely use a good claims management company. However, it is the hard sell, the rogue traders, and the targeting of the vulnerable by some companies that makes both our debate and reform in this area so necessary.

Citizens advice bureaux in my constituency do excellent work to support constituents who have been targeted by claims management companies, and to raise awareness of fraudulent and rogue traders. It is clear, however, that the Government need to do more to stamp out such practices altogether. Who here has not received one of those messages reading, “There is £2,167 waiting to be claimed in your name for the mis-selling of PPI on your loans and credit cards. To get this as soon as possible, reply to this message quickly.”? Three in four people continue to receive unsolicited texts or phone calls from claims management companies offering them the chance to claim compensation, and nine in 10 people who receive such a message say that it is not relevant to them at all. Although that issue was addressed in the House of Lords on Monday, it is also worth mentioning today in Westminster Hall. Some of the companies pursue a range of communications such as cold-calls, text messages and even e-mails to encourage individuals to make a claim. The Government need to look at what can be done to stop the selling of personal information to be used by such companies.

However annoying those text messages are, they are only part of the problem. I was recently contacted by a constituent, Mr Prince, who has given me permission to use his story. He was a victim of an unscrupulous claims management company called Lifestyle Money from Swansea, a little down the road from my hon. Friend the Member for Cardiff North (Jonathan Evans). Lifestyle Money called Mr Prince emphasising that they were acting on behalf of ordinary folk like him who may have been mis-sold PPI by the banks. They kept plugging the fact that they were registered by the Ministry of Justice and the Financial Services Authority to act on their behalf in collecting money owed to individuals that were mis-sold PPI. They told him that no money was to be paid up front to them, but that they required credit card details to hold on file, so that once a claim was successful, they could take a percentage, but would forward the rest to him. They also promised to send him an information pack with further details about how to proceed with making a claim.

That all seemed very fair to my constituent. No money was required up front. If the company was successful in winning him back compensation for his mis-sold PPI claim, only then would money be taken from his account. Some 10 days later, his information pack duly arrived. Lifestyle Money had gone to the trouble to mark pages to be signed and returned if he wanted to continue with the claim. However, Mr Prince decided not to proceed, and he thought that that would be the end of it. A phone call, an information pack received but not signed, and no money passed on—case closed.

Unfortunately, that was not the case. Several weeks later, Mr Prince received his credit card statement, which showed that Lifestyle Money had taken £359.98 from his account. He was completely shocked and confused about why that money had been taken out. On the phone, the company said that no money would be taken, and in the information pack, £359.89 was not mentioned at all. Following further investigation, he found that the sum was taken as an admin fee, but he was told that it would be returned in full should his claim prove unsuccessful.

Mr Prince was rightly annoyed and angered by that. To add to his anger, by the time he received his credit card statement, he was, of course, outside the 14-day cooling-off period, and he was told by Lifestyle Money that it would not return his money until he had made a claim. How was Mr Prince to act within the 14-day cooling-off period when the first he knew about the money being taken out was upon receiving his monthly statement, a good three weeks after that had happened? That money had, in fact, been taken on the day of the cold-call, even before he had received the information pack and before he could decide whether he wanted to pursue a claim with the company.

Luckily for Mr Prince, he was able to get the money back, after the intervention of the previous Minister, my hon. Friend the Member for Huntingdon (Mr Djanogly), who kindly got his officials in the claims management regulation unit to conduct an investigation on behalf of Mr Prince into the specific complaint. They proved successful in getting Lifestyle Money to pay Mr Prince back his money. Burton upon Trent is next door to my constituency, and I praise the hard work of the officials who work in the unit there, as well as the previous Minister, of course.

All that shows that greater regulation is needed. How can it be that a company can take over £300 based on one cold-call and on sending out one information pack, which was not signed? Even if Mr Prince had decided to go ahead and make the claim, the chances are that Lifestyle Money would not have been successful in winning him compensation. A recent web-based public survey undertaken by Citizens Advice showed that only 5% of respondents reported that the claims management company that had engaged them had managed to obtain any compensation for them. Rogue traders pursue everyone, regardless of whether they have a legitimate claim or not, taking fees up front to ensure payment even if they do little or no work, as in the case of Mr Prince.

In 2010-11, the MOJ received 12,504 complaints about companies offering financial products and services. Most of them did so by cold-calling and taking up-front fees. It is a pleasure to welcome my hon. Friend the Minister to her position. I ask her to continue work on strengthening the regulation in this industry. In particular, we need to consider banning up-front fees, so that there is no longer an incentive to pursue individuals who do not have a legitimate claim. We need a more effective cooling-off period, so that clients do not have to pay anything up front until after that period has ended, and in no circumstances should a company be able to take money from someone’s account without explicit consent to do so. More should be done to ensure that people know that they do not have to go through a claims management company to make a claim; they can do it themselves and for free. Perhaps the Minister will consider imposing a levy on companies that use unsolicited calls and text messages in order to discourage them from doing so. I am sure that if we tighten up the regulation, the Minister will find that many of the rogue traders will be stamped out, leaving genuine claims management companies to go on providing a legitimate service that helps many people who do not want to pursue a claim on their own to do so.

I again thank my hon. Friend the Member for Thurrock for initiating the debate and I thank you, Sir Alan, for the way in which it has been conducted. I hope that I might be able to hear the Minister’s words at the end.