Claims Management Companies

Jackie Doyle-Price Excerpts

Tuesday 19th March 2013 Commons Chamber

[Nic Dakin]

The hon. Gentleman makes a good point. A constituent of mine who works for a company told me recently that a member of the public, on the advice of a claims management company, had rung it up and given it the spiel. My constituent said to her, “I’m sorry, but we haven’t been selling PPI for the last 15 years.” The lady on the other end of the phone said, “Oh, I’m really disappointed. I thought I was going to get some money.” The hon. Gentleman is exactly right that such companies raise expectations and exploit vulnerable people at a difficult time. That really should be stopped.

Based on their cold-calling fishing expeditions, claims management companies write numerous letters to businesses simply because a client recalls that they may have had a financial transaction with a company, even though no evidence is provided. The CMC-generated letters always accuse the businesses of mis-selling, citing a stock list of reasons, despite the fact that in many instances no PPI was ever sold. CMCs also buy leads, many of which have been generated by companies that follow up accident whiplash claims and then try to instigate other claims where no client discontent exists.

Ironically, members of the public do not need to use any kind of intermediary to submit a PPI claim. The consumer will be charged about 30% of their compensation if they use a claims management company, but nothing if they submit the claim themselves. The consumer group Which? estimates the average PPI claim to be £2,750, costing the consumer around £835 in CMC fees.

Claims management companies are not just unnecessary, they can be damaging to both consumers and businesses, and an example from my constituency shows how serious that can be. Ian Broadbent’s company, Blue Sky Mortgages, has to respond to a continuous stream of vexatious claims from claims management companies on behalf of clients who have never been sold PPI by his business. In some cases, his business has had no dealings with the claimants whatsoever.

That is more than a mere annoyance. When a company disputes a PPI claim, the Financial Ombudsman Service steps in. However, there are clear problems with the way in which disputed claims are handled. Businesses are charged up to £850 per case, whatever its merits, and although no fees are charged for the first three claims against a company—soon to be extended to the first 25 claims—the rate at which CMCs generate claims, often with the most scant client information, means it is not long before a business has to pay out large sums of money for doing absolutely nothing wrong.

FOS investigations further damage businesses by dragging claims on, and it can take several years for a dispute to be resolved. That can be extremely damaging for businesses, with the uncertainty and unpredictability of FOS investigations adding further pressure to businesses struggling to survive in these austere times. Businesses have no right of appeal against FOS decisions—a right that consumers and claims management companies retain—and that is at odds with some fundamental principles. Claims management companies can file claims with absolute impunity. There are no charges for false claims, and if a claim succeeds, they know the decision is final.

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

I congratulate the hon. Gentleman on securing this important debate on an issue that has concerned our constituents for some time. Does he agree that it is perhaps time that this became a less risk-free business for claims management companies, particularly in the field of PPI where, frankly, reckless profiteering is being carried out by companies with absolutely no risk to them?

[Nic Dakin]

The hon. Lady makes an excellent point. We have a situation in which claims management companies can never lose, however vexatious the claims they pursue, while businesses targeted by those companies always lose. She is right: it is time to balance the risk in a different way.

--- Later in debate ---

[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.