Claims Management Companies

Lord Stevenson of Balmacara Excerpts

Tuesday 29th May 2012 Lords Chamber

[Lord Stevenson of Balmacara]

My Lords, I declare an interest as chair of the Consumer Credit Counselling Service, which has some involvement in this area. I start by thanking my noble friend Lord Kennedy for introducing this debate and for posing the question on how we get higher standards in this area. I also draw attention to the House that I am not the noble Lord, Lord Young of Norwood Green, if Members have an earlier version of the Speaker’s List. I am having to deputise for him, although I am slightly nervous about raising that issue in this place because it will be recorded that the noble Lord, Lord Young, was unfortunately struck down last night and was unable to be present today, which will probably result in a flood of calls along the lines of the suggestion from the noble Baroness, Lady Scott of Needham Market, that once these things get out they are pursued. In this case, I do not think that it is anything that he could possibly claim for—but you know the noble Lord, Lord Young.

It is extraordinary how the growth in claims management companies has risen since 2006, with the change in regulation. It was also interesting to note the rate of churn within those, which suggests that quite a lot of activity is going on below the radar. My noble friend Lord Kennedy made the point that some of the returns on the fees being charged here are astonishing, with up to 30% fees for work being done. It is perhaps overheating as a sector and may need further work and investigation by the Government.

My noble friend made a powerful call for action across a wide range of activities. He mentioned the generic question of fraud. One point that he did not make but which is also of concern relates to whiplash. A recent report in the papers said:

“The data show that nine of the 10 postal areas with the lowest number of whiplash compensation claims per head were in Scotland, where the legal system imposes stricter controls on referral fees. There were only three claims for every 1,000 residents in the Edinburgh and Dundee areas … compared with 22 in Liverpool and 21 in Uxbridge”.

As the claims director at Aviva said:

“I don’t believe people in Scotland have significantly stronger necks”.

In other words, there is a suggestion here that perhaps fraudulent work is at play, which is something that needs more investigation.

We also heard about the cold calling and how that seems to follow people around. Increasingly we have all had problems with text messages, e-mails and phishing expeditions on the PPI mainly, but not limited to that. There are also transgressions in the sector about how fees are charged to consumers who are vulnerable and unable to respond.

Having heard the points made by my noble friend and the noble Baroness, Lady Scott, and the expertise brought to this debate by my noble friend Lady Sherlock, I think that there are a number of points that the Government should think very hard about. The question was asked whether a voluntary code was the right way forward on this. In some ways, perhaps initially when businesses are starting up, a voluntary code is a good way of doing it. But as the sector matures and people begin to opt out or work round it, a statutory basis probably needs to be considered. I would be grateful for the Minister’s comments.

There is also the question of whether or not, perhaps in co-operation with the FOS, there should be a naming and shaming of defaulters and in some sense a penalty through payment. That is something that should be considered, with the maturity of the sector. There is also the important question of the TPS review, the role of the Information Commissioner and whether that should be reclassified so that it becomes a body that has ability to pursue those who default. Obviously, there is a question about overseas calls there.

The whole question of the PPI review seems to be peaking and beginning to come back. It is something that the Government might think about reviewing. It seemed to come from nowhere. We heard from my noble friend Lady Sherlock how and why that happened, but it does not really explain the long tail of activity that we are all seeing. It would be interesting to have a sense of that, and maybe the Government might look at reviewing that and give us a report on it in future.

Finally, at the heart of the debate, the question that my noble friend Lord Kennedy raised at the heart of his speech was what the role was of the MoJ in this sector. In some senses, we have reached the stage in this industry whereby strong and effective regulation—in bold, as some people said—is required. That does not lie happily with the Ministry of Justice as a sponsoring department. The Government might think of the opportunities that present themselves through the Financial Services Bill, shortly due in your Lordships’ House, in which a number of bodies are being given new regulatory authority and duties. It seems odd that this particular sector of the financial industry is not part of that, and there might be an opportunity to discuss further with Ministers whether they could receive an amendment on that issue.