(11 years, 9 months ago)
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It is a great pleasure to be here under your chairmanship this afternoon, Sir Alan. It has been an interesting and well informed debate, and I thank the hon. Member for Thurrock (Jackie Doyle-Price) for securing it. We have heard some eloquent speeches on this substantial problem that have called on both professional expertise and personal experience—either directly or through constituents. The hon. Lady was right to concentrate her comments on payment protection insurance because the legal ombudsman brief for this debate says that when it takes over responsibility for dealing with consumer complaints, it expects 95% of them to be related to PPI. I was alarmed to hear that that transfer may be delayed, and I hope the Minister will deal with that and tell us when it will take place.
PPI is not the only area of concern, and I will go on to mention some other worrying aspects of CMCs and their operations. There have been other abuses in the financial services sector, such as endowment mis-selling and bank charges. My hon. Friend the Member for Makerfield (Yvonne Fovargue), who has huge experience in this area and in consumer protection through her role with the Citizens Advice service, alluded to the fact that CMCs have been let in thanks to the appalling performance of the financial services sector in this country over the past few years. If the banks had not mis-sold PPI and overcharged, and if insurance companies had not mis-sold endowment policies, there would have been no opportunities for the CMCs.
In the informative briefing that we had this afternoon, the building societies pointed out that they were responsible for a mere £200 million of mis-selling, whereas the banks have set aside £12 billion for mis-selling one financial product. That fact alone shows the extraordinary depth to which this country’s banking industry has sunk over the past few years. Effectively, the opportunity for CMCs was created by the poor regulation—and, more importantly, by the poor performance—of the financial services sector. Furthermore, the problem was also encouraged by the poor performance of the Ministry of Justice, which has not taken these matters seriously.
At the back of the debate pack are a whole series of questions that I asked in 2011 and earlier this year. In reply to one, the Minister’s predecessor, the hon. Member for Huntingdon (Mr Djanogly), said:
“At the end of July 2011, eight employees and 39 contracted staff work in the Department's claims management regulation unit. Three employees and seven contracted staff handle consumer advice matters, including complaints.”—[Official Report, 5 September 2011; Vol. 532, c. 273W.]
That is not an adequate provision for the degree of mis-selling and abuse that has taken place. That position has now changed, and the Minister will update us on current staffing and operational levels. None the less, those previous levels reflected, at the very least, complacency on the part of all those involved.
Two consultations are under way—only one is still open—on claims management companies. The second one relates to fees, and the Government are quite properly consulting on whether regulation fees should be raised, so that the costs of regulation are better covered by the CMCs, which theoretically make substantial profits. I am also pleased that the legal ombudsman will be taking over responsibility for the matter, and I hope it will do a good job.
We have an interesting brief from the legal ombudsman laying out the various considerations and concerns. The common theme among the concerned parties who lobbied Members before today’s debate is that the Government’s consultation on the regulation of CMCs is not going far enough. It is right, as the August consultation asked, that contracts should be in writing and that CMCs should be required to inform clients of any supervisional variation to the business authorisation once in effect. It is also right that when CMCs refer to their regulatory status, they should say that they are regulated by the Claims Management Regulation unit rather than the Ministry of Justice; many have been suggesting that they have Ministry of Justice endorsement.
Although all those points are welcome, they do not, however, deal with fraudulent claims or the recycling of claims. I should like to see a requirement that claimants must disclose whether they have previously interacted with other law firms or CMCs. More importantly, the whole area of cold-calling, SMS texting and so on, is not dealt with. The main problems that have been raised this afternoon, such as the 25% to 30% that CMCs are raking off from claims—the no-sale claims—have not been addressed. In any other walk of life, it would be extraordinary for a major industry to establish itself on the back of pursuing non-existent claims. In many cases, the parties who receive the texts or respond to the adverts are not fully aware of all the issues. Part of the problem with mis-selling to people who are vulnerable—both in an orthodox and a financial sense—is that they do not have the financial education or skills to deal with the hard sell in the first place, or indeed the hard sell of the CMCs in the second place.
Lest it be thought that one is against those people who are unsure whether they have PPI, the Financial Ombudsman Service has made it clear that there is an obligation on all financial services companies to respond to a request to find out whether someone had a PPI contract. Therefore, all those CMCs could easily make that inquiry first before submitting a claim.
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.
That is a good point. We have not spent a lot of time discussing whiplash today; I had thought that we might spend a little more. The situation is exactly the same: there is fraud in the area of whiplash claims, particularly soft tissue injury claims. The figures compiled by APIL show that 80% of sufferers of such injuries either report their symptoms accurately or underplay them. That means that 20% are perhaps not reporting their symptoms accurately or are exaggerating them. That puts things into perspective. I do not believe that a massive amount of fraud is going on, but a significant amount is going on and it needs to be tackled.
The hon. Gentleman gives the view of APIL, but its briefing also says that 80% of these victims have an accurate medical diagnosis. Yet the all-party group on insurance and financial services, which I chair, heard evidence from doctors saying, “You can’t diagnose whiplash. It’s actually impossible.”
Some of us may have qualifications in some areas, but I have to say that I have no medical qualification and I do not know whether the hon. Gentleman has one to add to his other distinguished qualifications. We will not resolve the issue of whiplash this afternoon, but to write off soft tissue injury and say that there is no such thing is taking matters too far the other way.
I will quote one other statistic. As we know, almost 30% of claims are encouraged by insurers. I have one or two examples here from constituents of mine who had minor road traffic accidents, and who then had their details sold on by their insurers. So we have insurance companies that—presumably to make a profit—either own or co-own claims management companies, and that are selling on details and engaging in third-party capture, which of course means they are paying out money without any medical evidence whatsoever.
I am not saying this is a black and white issue. I am saying, “Let us identify who the rogues are, crack down on them and not be distracted by them from our other purposes.”