Claims Management Companies

Debate between Helen Grant and Jackie Doyle-Price

Tuesday 19th March 2013 Commons Chamber

[Mrs Grant]

Again, I am grateful to the hon. Gentleman for acknowledging the good work of the CMR unit in the MOJ. Of course, we are working across government to try to get this right. I hear exactly what he says, but we need to take a balanced approach and to accept that not all CMCs are bad. We want targeted, appropriate and proportionate action against the bad companies, but we also want the good ones to continue.

Lastly, this year we intend to commence powers under the Legal Services Act 2007 to extend the Legal Ombudsman’s restriction in order to provide an independent complaints and redress scheme for clients dissatisfied with the service provided to them by the CMC they have contracted with. Consumers will benefit, because the Legal Ombudsman has wider powers of redress, including the ability to order compensation.

I want to pick up on some of the issues raised by hon. Members. I believe that I have already touched on my attitude to balance and our civil reforms to funding and the costs. I would like to reassure the hon. Member for Scunthorpe that I firmly believe that, notwithstanding the reforms, meritorious claims will still be permitted. It is avoidable and spurious claims that we want to stop.

On the issue of banning cold calling and texting, I should say that nuisance calls and text messaging are a serious problem that can cause considerable annoyance, as clearly it has done in the case of the company in the hon. Gentleman’s constituency. The Information Commissioner’s Office can take enforcement action and has lead responsibility in this area, but we of course work very closely with it, and will continue to do so. The commissioner can impose penalties of up to £500,000 for serious breaches of privacy. Indeed, I was informed a few days ago that for the first time it recently issued fines totally £440,000 to two illegal marketers responsible for distributing millions of spam e-mails.

In our opinion, a blanket ban on cold calling would be disproportionate. Other businesses operating in similar industries such as debt management are not subject to a blanket ban. Next year, CMCs will have to have a signed contract before they can take any up-front fees from an individual, and that will tackle the main detriment resulting from cold calling.

On the issue of charging CMCs, we fear that that could penalise consumers who find the services of CMCs helpful in making complaints. We worry, too, that any fee would be likely to be passed on to the consumer. Also, we do not believe that charging a fee is the correct approach to protecting consumers. Protection will ultimately be achieved by effective regulation.

[Jackie Doyle-Price]

I hear what the Minister is saying, but I draw her attention to PPI claims, for which the banks have well-established processes that involve only the filling in of a form. The presence of an up-front fee might make consumers think twice about giving their business to a company, and about doing the work themselves instead.

[Mrs Grant]

I hear what my hon. Friend is saying, but I am afraid that I fundamentally disagree with her on this point.

The hon. Member for Scunthorpe asked who might be the best regulator for these purposes. I believe that the MOJ is in a good position to continue in that role. We can act now, and we are doing so. The CMR unit has a good track record of making a difference using relatively limited resources, and we have had a good response from stakeholders, who are supporting the regulation remaining with us. I also believe that it is not a good idea to transfer responsibility at a time of substantial change.

In conclusion, the CMR unit will step up its approach, and resources will be devoted to tackling the underlying problems that exist in the conduct of some CMCs. I do not believe that institutional reform is necessarily the answer, especially at a time when the industry is undergoing such fundamental change. The industry will of course have its role to play in driving up standards. CMCs must give consumers and defendants more confidence in the system by ensuring that they comply properly, fairly and adequately with the rules.

Question put and agreed to.

Claims Management Companies

Debate between Helen Grant and Jackie Doyle-Price

Thursday 8th November 2012 Westminster Hall

[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.