Claims Management Companies

Jackie Doyle-Price Excerpts

Thursday 8th November 2012 Westminster Hall

[Jackie Doyle-Price (Thurrock) (Con)]

It is a pleasure to serve under your chairmanship, Sir Alan. I am pleased to have secured this debate, which is particularly timely given the Government’s recent consultation on reforms to the regulatory system affecting claims management companies.

As we all know, the Ministry of Justice has been regulating claims management companies since 2007, but the industry has grown significantly during the intervening years, and many firms have become much more aggressive in chasing up new business leads and opportunities, to the detriment of consumer interests and the insurance industry more generally.

Since securing this debate, I have been contacted by numerous organisations. Claims management companies have achieved a unique feat in uniting the consumer lobby and the financial services industry lobby. I have heard from the British Bankers Association, Which?, the Association of British Insurers, the Building Societies Association and the Finance and Leasing Association, all of which endorse the call for stronger regulation of the sector. There is general support for the measures in the Government’s consultation, but the consensus view is that those proposals do not go far enough.

We are witnessing practices that cause considerable consumer detriment. The cost to the insurance industry, often from questionable claims, is inflating insurance premiums considerably. We have debated the increasing volume of whiplash claims and the disproportionate legal costs they generate. Those costs will inevitably be passed on to the consumer.

In the case of payment protection insurance claims, consumers are often charged high fees by the claims manager, who has done absolutely nothing for them. As we all know, following the High Court judgment, banks are required to pay refunds and have set aside billions of pounds for that purpose. All the consumer needs to do is fill in a form; they do not need the intervention of a claims management company. I believe that many consumers have been misled into entering into contracts with claims management companies, as they have been falsely led to believe that they need such companies to do it for them or that they will receive a higher refund by doing so. That appears to be a breach of existing rules, which state that claims management companies should advise clients to pursue a case only if it is in the client’s best interests. Clearly, in the case of PPI refunds, that is not the case. In addition to implementing the recent proposals for regulatory reform, the MOJ could also consider whether it is properly enforcing existing rules when claims managers have clearly been overly aggressive in securing a consumer contract, in contravention of the rule that they should act in clients’ best interests.

I should acknowledge that there is a role for claims management companies in securing appropriate settlement for consumers. However, as I said, the industry has grown significantly, and we must ensure that the regulatory firm that takes action against wrongdoers is fit for purpose. Good, responsible claims managers have nothing to fear from tighter regulation. In the last 48 hours, I have received a number of representations from reasonable and well-behaved claims managers supporting the proposals for regulation and drawing attention to rogue operators. They all have much to gain from a tighter system of regulation, which will improve the industry’s current ambulance-chasing reputation.

I broadly welcome the Government’s proposals, but they were modest in sneaking out the consultation over the summer. Hitherto, the Ministry has done a reasonably good job, although I qualify that by saying that the industry has grown more quickly than the regulatory team can reasonably manage. I am not arguing for a bigger regulator, but for tighter rules and for the regulator to have the tools to do the job expected of it.

Currently, approximately 3,000 claims management companies are authorised by the Ministry, which has been active in trying to weed out rogue operators. This year, 50 have had their authorisation cancelled; last year it was 96, and the year before that it was 115. It is evidence that the Ministry is taking appropriate action. None the less, the scale of the problem is bigger than the current team can reasonably manage. I draw attention particularly to the PPI claims industry, which will be the focus of my remarks. Other colleagues might wish to refer to other types of claim, but PPI highlights most of all where the real consumer detriment is taking place.

I would like to set the scene by describing what the Ministry is up against before addressing whether the Government’s proposals go far enough and what other actions I would like them to take. The Sunday Times reports that the industry is earning £1 billion from PPI claims alone. That estimate actually appears rather conservative to me when the issue is examined in detail. We are also witnessing a period of much more aggressive business-seeking. I am aware of an exchange in the other place during which Justice Minister Lord McNally revealed that he received five or six such texts a day. If the Minister responsible is being chased in that way, it shows what a challenge less able and more vulnerable consumers face in keeping such people at bay.

[Jonathan Evans (Cardiff North) (Con)]

I congratulate my hon. Friend on drawing attention to this important issue. On her £1 billion estimate of the income from PPI claims management companies, she will be aware that the latest indications from the banks are that some £15 billion may have been set aside for PPI, yet some claims management companies charge more than 25% of compensation in fees. Does that not make her point about the £1 billion being a severe underestimate of the industry’s likely income?

[Jackie Doyle-Price]

My hon. Friend has articulated the point far better than I have. The evidence shows that the average cost of a claim through a company is 30% of the refund plus VAT. That is a significant bill. His other point is that the banks have set aside a particular figure to settle PPI claims. Able and savvy consumers who realise their rights have already filed their claims directly, but a significant pot of money remains. The companies know that it is sitting there, and they will go out and get as big a share of that income as they can. I completely endorse his view that £1 billion in fees is a considerable underestimate.

As I said, PPI claims management companies are totally superfluous. Consumers are simply being ripped off. Citizens Advice has also highlighted the detriment caused by such companies; in fact, it goes out of its way to say that such companies deliberately prey on the elderly and those out of work. I do not know whether hon. Members have much opportunity to watch daytime television, but if they do, they will see the advertising behaviour in which such companies engage. During a typical morning TV show, the commercial breaks generally consist of ads for debt consolidation companies, personal injury claims companies and one or two PPI claims companies. Clearly, consumers watching TV at that time will often be the very vulnerable, including the elderly and those out of work. They provide easy prey. They are being sold a product on the premise, “You don’t have to do anything; we’ll just send you a cheque.”

In pursuit of such easy money, claims management companies are engaging in very aggressive marketing practices based on misleading consumers. I am afraid I have a rogues’ gallery. Gladstone Brookes took £25 million in fees during the first half of this year. Gladstone Brookes has been reprimanded by the Advertising Standards Authority on more than one occasion for misleading advertising on PPI claims.

A complaint was made about a TV ad which stated:

“Reclaiming PPI takes up your time—Fact”,

next to a ticking clock. The Advertising Standards Authority ruled that, while the ad did not state that reclaiming PPI takes a lot of time, the ticking clock was designed to imply that that was the case, so it ruled that the ad could no longer be used. Gladstone Brookes, however, did not let the subject drop there, and it continues to use advertising that leads consumers to believe that they have only a limited amount of time in which to submit their claim. Frankly, that is misleading. Another company, Mitchell Farrar has earned £50 million so far this year and is currently spending £1 million a month on advertising, which shows how lucrative the business is to such companies, because they are prepared to spend that amount of money chasing up such opportunities.

People are being hounded daily by text and e-mail. Which? has found that a staggering 74% of people in this country have been contacted directly by claims management companies. I am sure that everyone in the Chamber has received at least one tiresome text message. In the past week I have received two, one of which read:

“We have been trying to contact you regarding your PPI claim, we now have details of how much you are due, just reply POST and we will post you a pack out”.

That statement is clearly untrue. The second text read:

“Records passed to us show you’re entitled to a refund of approximately £2,130 in compensation from mis-selling of PPI on your credit card or loan”.

Such a tactic is common among those companies. They use a four-figure sum in a text message that is clearly designed to seduce the recipient into replying, because who would not reply to the offer of free money? [Interruption.] I see that the hon. Member for Dumfries and Galloway (Mr Brown) has just received one—good evidence that the firms are being aggressive in chasing business leads. In fact, the ability to use text messages is a cheap and risk-free way of doing it, particularly if intermediaries are used to dispense the texts. The Government need to look at the whole area, which I am aware goes beyond the narrow scope of the Ministry’s interest and involves regulators such as Ofcom and the Information Commissioner. We need to join up their activity to ensure that consumers are protected.

That is the marketing, but those practices are nothing compared with what happens to consumers who actually jump at the bait and engage with a claims manager. Which? tells me that it is regularly contacted by consumers who have had negative experiences when dealing with claims management companies to retrieve mis-sold PPI. One case involved a company called We Fight Any Claim, which approached a consumer about claiming back mis-sold PPI on his credit cards, and asked for £420 as an up-front fee. He agreed to the payment, but it then proceeded to take up to £10,000 from his credit cards. It later transpired that he had never had PPI in the first place, but We Fight Any Claim retained his money. Only when the Ministry of Justice intervened was most of his money refunded, although We Fight Any Claim still retained a £735 admin fee, which he has been unable to get refunded, and he had never been compensated for the financial difficulty caused by the removal of £10,000 from his cards. It is shocking that companies have the audacity to behave in such a way, and we need to ensure that we have the regulatory system to prevent it from happening.

The industry is less than transparent about fees and charges when engaging with clients, so consumers are approached aggressively, told that they can get hold of some money and left in ignorance about the potential costs they are incurring. I have a constituent who was approached about PPI, and that led her to initiate a claim with the Halifax, netting her a refund of approximately £2,000. She was staggered to receive an invoice for more than £700, when all the company had done was send her the form, while she had engaged with the Halifax directly. That is not unusual, as I said, and the fees are typically 30% of the refund plus VAT.

The time is certainly right to revise the rules. The existing rules predate the PPI claims industry and have been shown by it to be deficient. I am pleased that the Ministry has now proposed that all contracts need to be signed physically by the consumer, which hopefully will deal with the issue of consumers suddenly being faced with massive, unanticipated bills. I encourage the Government to enact that provision without delay. Also, claims management companies need to be clearer about their fees, so that people are not faced with a bill they were not expecting. The Government should go further and ban up-front fees across the board. Which? and some industry bodies have called for that. I referred earlier to a consumer who was cold-called and then charged £8,000 up front. In no way could a regulated system that protects consumers allow that to happen.

As I said, the industry preys on the vulnerable. Which? told me of the case of an elderly gentleman who is 87 years old, deaf, housebound, frail, on the telephone preference register and with no PPI or debts. He was cold-called by a claims management company and persuaded to give his credit card details; it then proceeded to take £250. I call that theft, and I hope the Government will consider banning up-front fees across the board.

The Government have also proposed to improve consumers’ ability to get redress and have their complaints managed effectively by passing responsibility to the legal services ombudsman—a move that I understand was intended to take effect next April, although there is concern that the timetable might have slipped. Can the Minister give us some clarity and a firm reassurance as to when that will occur, so that the ombudsman can prepare to take on such complaints? Clearly, the volume of such cases, which we have all witnessed, has resource implications for the ombudsman. At present, the ombudsman expects to investigate 4,000 claims a year, of which 95% are likely to be PPI-related, as well as a spike in claims at the beginning of its responsibility as consumers become aware that there is somewhere to go with a complaint. The ombudsman needs to make plans so that the right resources are in place. I am told that it needs to know this month, for planning and recruitment purposes, if it is to take responsibility from April. I therefore invite the Minister to confirm whether that will be the case.

It is also important that claims management companies make consumers aware of their debt recovery procedures before entering into a contract. Obviously, they are dealing with people who are taking on substantial volumes of credit and have debt issues. We have seen examples of lenders that have refunded customers’ PPI but, rather than send a cheque, have offset the amount against outstanding debt liabilities. That is sensible and in the interests of the consumer, but then, the management company still sends an invoice to the customer demanding a significant refund, which can add to debt problems. We encourage the Government to oblige claims management companies to fall under the terms of Office of Fair Trading debt collection guidance, so that such aggressive behaviour towards consumers is not tolerated by the regulatory regime.

Other agencies have an interest in the better regulation of claims management companies. The key responsibility falls to the Ministry of Justice, but Ofcom and the Information Commissioner have an interest in how the companies are marketing, while the financial ombudsman service is challenged by the often vexatious claims. I am told that of the more than 5,500 groundless claims brought to the FOS—only 2.5% of the total complaints it deals with, but nevertheless generating resource implications for the industry as well as the FOS—the majority were from claims management companies and 99% were about PPI policies that had never been sold. The companies have a risk-free opportunity to seek a refund. All they need to do is to submit a form to the FOS, for which the industry bears the cost, and if they get lucky they earn some commission, and if they do not there is no cost.

I want the Government to consider whether the companies should be faced with a bill for pursuing vexatious claims. The normal fee for a case handled by the FOS is £500. If it was clear that the companies would bear the cost of submitting those claims, they might try a little harder to ascertain whether customers had PPI in the first place. That is important, not least to ensure that all the agencies involved in regulating the sector have recourse to funds from the industry to deal with the malpractice that it is causing.

I encourage the Minister to join up with other agencies to ensure that everything is covered when regulation is tightened. I also encourage her to look more closely at what more can be done to tackle the problem of unsolicited text messages and uninvited phone calls. The companies’ actions are risk free, and they often use intermediaries so they can distance themselves from activities falling outside the scope of their regulators. We must make them more responsible for the partner organisations they deal with and the detrimental behaviour they undertake.

I am pleased to have had the opportunity to raise this matter now. I know the Government are considering action shortly, and I hope this debate will encourage them in the right direction, and to do more. I look forward to hon. Members’ contributions.

[Mr Russell Brown (Dumfries and Galloway) (Lab)]

I congratulate the hon. Member for Thurrock (Jackie Doyle-Price) on bringing this matter to the attention of the House. Yes, she saw me with my BlackBerry. Like most hon. Members here, I receive three or four text messages a month stating that I can claim PPI back. My good lady keeps me in check, so I know fine well that I am entitled to nothing and I have never had any claim for PPI.

I want to draw attention to a different element of claim management companies. I will not beat about the bush: I want to expose a company that is, thankfully, now defunct. It was licensed through the Ministry of Justice and used that licensing as a selling point to commit fraud and rip people off. The company Kerobo Claims, was initially based in Sale, Cheshire, and rented office space through Ravenstone UK. It advertised in local newspapers and on radio programmes and, unfortunately, one morning a constituent of mine heard an advertisement on local radio asking people if they had a loan of any description, and were they sure it would be enforceable in a magistrates court, because if not, Kerobo Claims were the people to deal with it—they could cancel that loan.

That is how my constituent was hooked. He approached the company, and said that he had a loan from Barclays. However, because it was not taken out prior to April 2007, the company could not handle it. He engaged in discussion with it and revealed that he had another loan, which was taken out prior to April 2007, and the company said that it thought it could help. Unfortunately for my constituent and his brother-in-law, as I will divulge, he did not have a credit card that predated April 2007 either, so his brother-in-law offered to help. He did that because the company said that when it had sorted the matter out, instead of sending out a cheque and asking my constituent for reimbursement, that would deal with it more quickly. Alarm bells should have rung, but they did not.

My constituent engaged his brother-in-law, who granted permission for my constituent to use his credit card. Kerobo then contacted the owner of the credit card, and said, “By the way, we think we could help you with any balance on your credit card.” He said that he had a balance of only £20, and asked what help the company could offer. Within 72 hours of the contact and the credit card details being given, Kerobo put a charge of £2,200 against the credit card for my constituent who had originally contacted it. Then, because the balance on the credit card had crept up to over £2,200, it put a charge against the credit card owner. All in all, within 72 or 96 hours, it had a charge of some £3,000. Hon. Members will understand that such a situation is embarrassing for people, so I will not divulge my constituent’s name, but I wonder how many people out there have suffered the same problem, accepted it as a bad experience, and said nothing.

I tried to contact the company by phone and e-mail, but nothing came back. I then saw a copy of the credit card statement and, surprisingly, the amount that had been taken out had gone to an account in the name of Ravenstone UK, the company renting the office accommodation to Kerobo Claims. That was somewhat strange. Some months later, I discovered that the money was being transacted through that account. The credit card company, MBNA, wanted nothing to do with it. I became suspicious, because soon afterwards the company moved to another address—Atlantic street, Altrincham. I was incensed by that and when I happened to be in the area three or four months after I had first been contacted, I went to the company’s so-called premises, which were nothing more than a mailing address. The lady there was helpful to the extent that she was apologetic, but I was only one of probably several hundred people who had called. I explained who I was and what was happening but although she was apologetic, she could do nothing.

I made further inquiries at other locations, and it became more and more obvious that the chances of getting the money back for my constituent and his brother-in-law were extremely limited. I had the names of a number of people, but they had not responded to my telephone calls and e-mails. I also had the name of Kevin Rogers-Davison, and his address and telephone number. I telephoned him and, strangely, during the whole conversation lasting seven or eight minutes he never once asked who I was. I merely said that I was phoning on behalf of the owner of the credit card. He said that he no longer had anything to do with the company and that it no longer existed. I had taken the opportunity to check his address on Google Earth, which showed a splendid, brand new, three-storey townhouse with a superb blue, two-seater Porsche outside the door. I congratulated Mr Rogers-Davison on his house and his car, and he immediately asked me whether I was threatening him. I told him that if he could see who was on the other end of the phone, he would realise that I am of no size to threaten anyone.

People like that should not get away with such activities, but I know that Kevin Rogers-Davison has gone on to other things. The hon. Lady has given clear indication of some of those who have been caught up—all sorts of people—and the tragedy is that those who ripped people off have gone on to PPI claims, and will move from that to something else. All I want to do today is draw attention to the sort of activity that has been going on.

I do not blame the Minister or the Ministry of Justice, but it needs to be recognised that all this has gone on in the name of the Ministry. The wider public out there see that as some kind of guarantee and think, “If this goes badly wrong, there is a Government Department there to back me up,” but that is not the case. When I first became involved in the case, the company had already been suspended and it had been given a period of time to put its house in order. It did not do so, and eventually it lost its licence. I will say to the Minister that the Ministry was as helpful as it possibly could be. I was in touch with the monitoring and compliance unit in Burton upon Trent. People there tried to help, but they were as frustrated as I was, and probably not half as frustrated as my constituents.

[Jackie Doyle-Price]

The hon. Gentleman is giving a powerful example of how some of these companies are deliberately set up to get rich quick and move in and out of the industry swiftly. We have a regulatory regime that allows them to set up something that is nothing more than profiteering. Would he, as I would, like to see more powers for the Ministry to suspend and de-authorise firms more quickly, because the difference is blatant when somebody is legitimate and when someone is preying on consumers?

[Mr Brown]

Absolutely, and I thank the hon. Lady for that intervention. If it were at all possible, when such companies need a licence, I would give them one for a short time in order to test the water and see how good they are. I would ask them to supply details to the Ministry of Justice of some of their customers and whether those people have been satisfied with the contact they have had. It is, however, undoubtedly a get-rich-quick system and unfortunately it has left distraught families in its wake.

On this occasion, the two brothers-in-law involved had to go to another member of the family and borrow the money to pay off the credit card balance. It is a salutary tale of sheer exploitation and people who have no conscience, no mercy and who are not interested in what they do to others. I suspect that people out there will have got into such a state that they have done something untoward—perhaps a crime to get the situation dealt with and get the money back. I even suspect that, in some cases, a person may have taken their own life. I have heard of examples of that without being able to verify whether it was true. It is a sad situation, and one that I hope the Government can do something about.

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[Yvonne Fovargue (Makerfield) (Lab)]

It is a pleasure to speak under your chairmanship, Sir Alan. I, too, congratulate the hon. Member for Thurrock (Jackie Doyle-Price) on securing the debate. Ironically, it was a super-complaint by Citizens Advice that partly led to the establishment of a whole new industry—claims management companies—in which the practices are almost as bad as those that the complaint was intended to redress. .

Which?, the consumer organisation, has found widespread rule breaches by claims management companies and the use of misleading statements and unfair contract terms by a significant number of companies. Initially, however, I want to deal with an issue that I now know has affected all of us in this room—I am pleased that noble Lords are not exempt from it, either. I am referring to the aggressive marketing techniques of claims management companies. I myself have received a number of calls and texts promising me large sums of money. Actually, I was promised £3,251—more than most people here—by one company that phoned me. I found that very strange, for two reasons. First, I had never had payment protection insurance, and secondly, I am registered with the Telephone Preference Service and have been for a very long time—I was one of the first people to register with it.

However, on investigating, I was horrified to find out that the Telephone Preference Service has no enforcement powers. They are the responsibility of the Information Commissioner, and only recently has the Information Commissioner acquired the power to impose fines of up to £500,000. Therefore, consumers have not only to opt in to the Telephone Preference Service, but to complain to a different body. Although the Telephone Preference Service will pass on the complaints and has been doing so in ever-increasing numbers, the situation is still confusing for consumers. I and quite a number of other consumers would prefer an opt-out rather than an opt-in service in this regard, but I believe that there is sufficient evidence of abuse for the regulator to consider banning claims management companies from cold-calling. The consumer can find them if they want them. There are plenty of adverts on daytime television, as we have heard. I believe that those people who need them will know where to go.

I come now to my other pet hate—unsolicited texts. That form of communication is not covered by the Telephone Preference Service. I wonder whether we should consider widening the scope of the service to cover it. The Information Commissioner’s Office surveyed the public in 201, and out of more than 1,000 respondents, 681 said that receiving a text caused them concern; 205 said that it was inconvenient; and 61 said that it had caused them substantial damage or distress. That is a huge majority who dislike unsolicited texts even without including me—I get into an irrational rage over them at times. I would also like to see an opt-in for that form of communication and a single point of complaint. I do not want to forward spam texts to my mobile provider.

[Jackie Doyle-Price]

One difficulty with unsolicited texts is that they come from an anonymous source and if people try to ring the number that they have come from, it rings off. Surely we need to find a way of regulating that, so that someone can be held responsible for sending the text.

[Yvonne Fovargue]

I agree. Quite often, the texts are from abroad from what is almost a harvesting service. Although companies should not be sending unsolicited texts and making unsolicited phone calls, they will go back years and years and say, “Well, you gave us your details. You didn’t tick the box years ago to say that you didn’t want to receive marketing texts.” It is very hard to disprove that. There is a system whereby people can forward spam texts to their mobile provider to get them blocked, but there are different numbers for different mobile providers, and people have to remember the code to forward them and actually take action to do that. I do not want to do that; I just do not want to get the texts in the first place.

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[Jonathan Evans (Cardiff North) (Con)]

I draw hon. Members’ attention to the Register of Members’ Financial Interests. I am chairman of a large life insurance consolidator. It is not open to new business, so is not directly involved in the claims management sphere, because much of its business comes from many years ago. Hon. Members should be aware of my position, because it sets some context for the remarks I will make. I am also chair of the all-party group on insurance and financial services, and, as my hon. Friend the Member for South Derbyshire (Heather Wheeler) said, the group has been heavily engaged in looking at claims management companies. Over the past year or so, we have heard from representatives from the Ministry of Justice, the legal ombudsman and claims management companies. It is important that hon. Members are aware that I speak from that perspective.

When we engage in a debate about such issues, it is important to remember the context. We heard a great deal about the actions of claims management companies in pursuit of payment protection insurance claims. In my remarks, I will add to those criticisms and suggest ways that practice can be improved. Let us not lose sight of the fact that bankers engaged in selling PPI to a lot of people who did not need it. The hon. Member for Makerfield (Yvonne Fovargue), who had a long career in Citizens Advice, drew attention to the fact that people’s rights needed to be identified. That is the context. The banking industry did not respond quickly or adequately enough. Too often, it dismissed the claims made by wronged consumers, and we must focus on the impact on consumers.

I say to the Claims Standards Council and those who represent claims management companies that we are on the side of consumers and we want people to have access to justice. We are not protecting the insurance or banking industries from having to compensate properly. If people have been wronged, it is surely unacceptable that they should be wronged a second time and that people who want to get rich quick can siphon off up to 30% of their compensation.

[Jackie Doyle-Price]

My hon. Friend will be aware that widespread mis-selling of PPI was identified as far back as 2004, but it took until 2010 for a regulatory intervention, which provided redress to consumers, to be enforced. Does that not make the case for being much fleeter of foot in dealing with such wrongdoing and underline the case for dealing with claims management companies now?

[Jonathan Evans]

That is absolutely right, but my hon. Friend’s point also endorses what I have said, because if the banks had been quick enough post-2004, the problems with claims management companies would not have developed. In a sense, the companies are taking advantage of the banks’ recognition of the liability, and the recognition more generally, to siphon away as much of the money as they possibly can.

Hon. Members have already drawn attention to some misgivings. Mr Kevin Rousell from the Ministry of Justice, who has responsibility for the relevant portfolio, addressed our all-party group. He said that the Government intended to change the rules on advertising on television because they recognised that many of these companies used the label “Regulated by the Ministry of Justice”, as though it were some sort of Government endorsement. Many companies that have had complaints raised against them, including some that my hon. Friend the Member for Thurrock referred to, use the fact that they are regulated by the Ministry of Justice as a badge of honour. The Ministry of Justice recognises that it is used misleadingly: people think that the Ministry of Justice in a sense endorses the activities of such companies, whereas the reality is that it is in the process of getting a grip on their activities.

The hon. Member for Makerfield referred to the Which? survey, which I was also going to draw attention to, primarily because it was undertaken more than a year ago, so we have known for 13 months that up to 60% of claims management companies were probably completely ignoring the rules. I reiterate that this is not an attack on claims management companies. I wish that the 40% who obeyed the rules had been the example for the whole industry. It is not good enough for the Claims Standards Council to say that debating the problems would withdraw access to justice, because it places itself in the position of excusing the failure of 60% of its members to comply with the rules.

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[Mr Slaughter]

They could, but they clearly do not. CMCs see a lucrative industry, because there is relatively little cost to them. I am not quite sure what they hope to get out of it in the end, other than perhaps nuisance payments both to make the claim and to make the reference to the financial ombudsman. Given the sharp practice that is clearly involved in the sector, I am not sure whether the Ministry of Justice’s proposals are up to the mark in dealing with it. We have heard some good examples of companies that simply disappear overnight and reappear in another guise. I am not sure whether enforcement is dealt with sufficiently in the current proposals.

[Jackie Doyle-Price]

That goes to the crux of the matter. What we have before us is a tighter system of rules, but the problem is the behaviour of firms which are just going out of their way to profiteer. What does the hon. Gentleman think about the view expressed by some in the industry that responsibility should pass to the Financial Conduct Authority, which will be empowered to tackle firms’ behaviour?

[Mr Slaughter]

I am certainly happy to look at that. It is a constructive proposal that combats the sharp practice and cleverness of such firms on their own level, and that is not happening at the moment. I am afraid that those firms will always be one step ahead of the regulation unit. I hope the legal ombudsman will address that point. We need to look at these companies’ approach to advertisements, text messages and such things. I am somewhat at a loss as to why the Government have been reluctant to tackle this area more cogently. Again, I refer to a question that I asked in February, which is in the debate pack:

“How many claims management companies have had their authorisations revoked as a consequence of telephone or text message spamming since May 2010?”—[Official Report, 27 February 2012; Vol. 541, c. 75W.]

The answer is none, and yet we know that telephone or text message spamming is not only one of the most irritating ways of hooking clients in the first place but one of the most productive; clearly it is productive, or the companies would not use it.

The legal ombudsman makes the point that they should have a significant role to play in unsolicited contacts, whether it is cold-calling or text messaging, but it is not quite clear to me at the moment what that role will be. The legal ombudsman also raises another issue. Once a client is hooked and then effectively milked by the claims management company, how does one deal with enforcement if the company is to be brought to account but simply changes its name and directors, then disappears before appearing under a new guise? I ask the Minister to address those points and consider whether a more comprehensive legislative regime to counter abuses by claims management companies should be introduced.

My right hon. Friend the Member for Blackburn (Mr Straw) has done an extraordinary amount of work in this area and introduced a private Member’s Bill on it. When we were discussing the Legal Aid, Sentencing and Punishment of Offenders Act 2012 last year and earlier this year, both in the main Chamber and in the other place we tabled a comprehensive series of amendments to deal with the type of abuses I have been describing. I understand that the Minister was not in her current role then, but I know she took an interest in the Act. I was at a loss to see why the Government were not happy to adopt—other than that they came from us—what were very stringent restrictions on unsolicited cold-calling and SMS texting, the regulation of claims management companies and other areas to do with data selling. They were primarily restrictions on the abuse of road traffic claims, but they equally apply to the mis-selling of financial products. It does not matter whose legislation it is: again, I advise the Government to go back and look at those restrictions.

There is a myth around that there is a whole industry, including lawyers and other practitioners, that is somehow encouraging the abuses of the system, but nothing could be further from the truth. I should say that I have had representations from the Association of Personal Injury Lawyers, the Bar Council, the Law Society, as well as from major solicitors’ firms dealing with claims on this subject. I urge the Minister, having recently taken on her new role, to listen to the voices in the claimant sector belonging to some of the best informed and most knowledgeable people, who are also very angry about the abuses that take place. Perhaps she should listen to those voices more and listen a little less to the Association of British Insurers and the rest of the insurance industry, whose fingers are all over the claims management industry. Many insurance companies own or co-own claims management companies, and many indulge in practices that are just as suspect in terms of third-party capture, and which manipulate the claimant market in that way. What I hope all Members wish to see is something that protects the consumer and allows genuine and honest claims to be made.

I was grateful to receive the various briefings for today’s debate—except possibly that from the ABI. After a nod towards claims management companies, it suddenly got on to the idea of the compensation culture again. I fear that, in their legislation so far, the Government have been seduced by that argument, despite all the evidence in their own reports and reports by the Better Regulation Task Force, Lord Young of Graffham and Professor Löfstedt. All those reports found that there may be a perception of a “compensation culture” in this country, but there is no reality, and what is needed is the regulation of abuse, not of honest claims.

The Government have pushed forward very enthusiastically in LASPO with a restriction on the ability of claimants with meritorious claims to bring their cases before the courts, across the whole area of civil litigation.

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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.

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[Jackie Doyle-Price]

I began this debate by saying that the industry has pulled off an amazing feat by uniting consumer groups and trade associations, and I can now say that it has pulled off another one by uniting both sides of the House. As the hon. Member for Hammersmith (Mr Slaughter) says, there is clearly a consensus on what needs to be done to reform the regulation of the sector. The Government are taking a step in the right direction, but I think we all recognise that much more needs to be done.

I want to home in on a number of common themes in the speeches of all participants in the debate. I hope the Government will consider what more they can do to strengthen the regulatory powers in this area.

Obviously, the Government are reforming the way in which firms refer to their regulatory status, because the association with the Ministry of Justice has clearly been a marketing tool. It is important that all regulators are alive to the fact that, quite often, firms with dubious motives use their regulatory status as a kitemark, rather than as what it is—a statement of who is the regulator.

All regulatory agencies could learn a lot from being more fleet of foot in dealing with rogue operators in whatever sector. The reason why we are all here discussing the matter is, as my hon. Friend the Member for Cardiff North (Jonathan Evans) said, because of the banks’ practice of mis-selling payment protection insurance over a sustained number of years. As parliamentarians, we all need to play a very active role in ensuring that established practices that are detrimental to consumers are nipped in the bud. We have to be fleet of foot in doing that.

Everyone has shown their irritation with the incessant text traffic that we are all receiving. I remind the Minister that the Information Commissioner says that such activities are outside the EU regulations on electronic communication. We need to ensure that, when we have regulations, the regulators have teeth to enforce them. Otherwise, those regulations are meaningless red tape for legitimate operators and will not stop the rogues.

I encourage the Minister to keep alive to whether the regulatory tools are sufficient, because we are talking about rogue firms that deliberately set themselves up to profiteer at the expense of consumers. As the hon. Member for Hammersmith said, such firms will always be one step ahead of regulation, so we need regulators that will tackle such behaviour and come down on the rogue operators, leaving those who behave appropriately to get on with their business. We need to look more closely at the financial penalties for rogue operators, such as for when they refer bogus cases to the Financial Ombudsman Service. One thing that fuels the business is that it is a risk-free operation to send out loads of texts and to follow every lead. Sometimes they will hit the lottery and get a good pay-out, of which they may take a third. They do not have to pay anything out, because the burden of bogus claims is shared by the industry. I encourage the Government to consider closely whether there is more that can be done in that direction, perhaps bearing in mind the suggestion of my hon. Friend the Member for Cardiff North for a sector-wide compensation scheme, or perhaps engaging the expertise of the Financial Conduct Authority.

I thank colleagues for participating in this debate. There is clearly consensus that consumers are being fleeced. We need to find the villains and ensure that we have a regulatory system that is fit for purpose.

Question put and agreed to.