draft Legal Services Act 2007 (Claims Management Complaints) (fees) (amendment) regulations 2017

Oliver Heald Excerpts

Tuesday 13th December 2016 General Committees

[The Minister for Courts and Justice (Sir Oliver Heald)]

I beg to move,

That the Committee has considered the draft Legal Services Act 2007 (Claims Management Complaints) (Fees) (Amendment) Regulations 2017.

May I say what a pleasure it is to serve under your chairmanship today, Mr Davies? I notice that you are wearing a Cubs scarf and woggle. I believe that that is in honour of the 50th anniversary of the Cubs—

[The Chair]

The 100th anniversary, so be prepared.

[Sir Oliver Heald]

The 100th anniversary, which as a Cubs ambassador I should have known. Anyway, I thought it was right to mention that, in the Christmas spirit.

As background to the regulations, the Legal Services Act 2007 (Claims Management Complaints) (Fees) Regulations 2014 allowed the Lord Chancellor to charge fees to regulated claims management companies to recoup the costs of the legal ombudsman’s work handling complaints from consumers about claims management companies. It is right that the costs of handling such complaints fall on the claims management services sector, not the taxpayer.

The 2017 regulations will amend the level of fees set out in the 2014 regulations for the financial year beginning 1 April 2017 and for subsequent years. Revising the level of fees will ensure that the Lord Chancellor can accurately recover the costs of the legal ombudsman dealing with complaints about the claims management services industry in the 2017-18 financial year. In addition to the legal ombudsman’s expected costs for that year, we need to take into account an over-recovery by the end of 2016-17. Taking both elements into account, the total cost of approximately £1.6 million—the exact figure is in the regulations—to be recovered from the market for 2017-18 is lower than last year’s figure of £2.3 million. There has been a reduction in the size of the market since last year, but the assumptions about future market change that are used in our fee model are still valid. Taking into account the total to be recovered and the current market, the fees need to be reduced.

Hon. Members will be aware that we intend to move the regulation of the claims management services sector to the Financial Conduct Authority. In tandem, we intend to transfer complaints handling to the Financial Ombudsman Service. Until that happens, it remains appropriate for the legal ombudsman to deal with complaints in the sector. Hon. Members will welcome the fact that the legal ombudsman’s costs related to complaints about regulated claims management companies continue to be met by the claims management services sector, in the same way that the costs related to complaints about legal services are met by the legal sector. However, fees need to be reduced where appropriate, to ensure that the fees charged mirror the actual cost of the legal ombudsman handling the complaints as closely as possible.

I commend the draft regulations to the Committee.

--- Later in debate ---

[Sir Oliver Heald]

I thank the hon. Lady for her speech and will certainly try to answer all her points. I will examine the record, and if I have missed any I will write to her.

The regulations apply to authorised CMCs. Unauthorised CMCs can be tackled in other ways, and there are even criminal sanctions for not being authorised. We are talking today about the authorised ones. Companies left the market last year, so there was an under-recovery of £500,000 in 2015-16. This year, we have made an adjustment that takes account of the under-recovery and therefore in 2016-17 there has been an over-recovery. In essence, each year an adjustment is made to ensure that if there is an under-recovery, it is recovered in the next year, and if there is an over-recovery, the fees go down. That is what we are doing today.

We aim to transfer complaints from the legal ombudsman to the Financial Ombudsman Service because the transfer of the regulation of claims management companies from the claims management regulation unit to the Financial Conduct Authority means it would be better placed there. The transfer will not take place before April 2018, and we are currently working with the legal ombudsman, the Financial Ombudsman Service, the Treasury and the Financial Conduct Authority on the detail of the transfer, which may require some legislation.

The hon. Lady asked how the claims management regulation unit has been getting on. Overall, it has done a good job. The unit has made concerted efforts to crack down on rogue behaviour. Some 1,400 licences have been removed. Fines of more than £2 million have been issued since obtaining the power to impose financial penalties at the beginning of 2015. Proposals are being developed to cap the fees that regulated claims management companies providing financial claims services can charge to consumers. All that action is designed to better protect consumers, to deter CMCs from predatory marketing and to help organisations that are on the receiving end of unsubstantiated claims.

[Maria Eagle (Garston and Halewood) (Lab)]

I am interested to hear those numbers. Is it the Minister’s understanding that that is what has led to the unexpected amount of activity from claims management companies, or does that just that happen year to year anyway?

[Sir Oliver Heald]

It does happen year to year, but there is no doubt that the market is changing and seems to be contracting. That is the overall picture, but there are yearly fluctuations.

It is obvious that regulation should be moved to the FCA. The idea is to have a more effective regime that drives out bad practice. As I mentioned, we have consulted on proposals to cap the level of fees; this is another step to help consumers. The Government aim to establish a tougher regulatory regime by transferring the responsibility to the FCA, re-authorising all the CMCs under the new regime and holding their managers to account for the actions of their businesses. That will mean more individual responsibility in the system, but it will take a little time to work through the issues.

On whiplash reform, which the hon. Member for Neath mentioned, the fee model considered whether the proposed changes to whiplash would have a material impact on the market for 2017. We are still consulting on that and we are not yet entirely clear that we have taken all views on board, but the proposed changes may not be in force for that year and we have gauged that they are likely to have minimal effect. Clearly there is the power every year to go through the exercise of seeing whether there is an over or an under-recovery, so there should be no question of the taxpayer losing out. In fact, that is a very important part of this scheme: the payments should come from the sector, not from the taxpayer.

I hope that I have covered all the hon. Lady’s points, but I will check the record and write to her if I have missed any. I hope that that is acceptable.

Question put and agreed to.