Financial Guidance and Claims Bill [HL]

Viscount Trenchard Excerpts

Committee: 4th sitting (Hansard): House of Lords
Wednesday 13th September 2017 Lords Chamber

[The Earl of Kinnoull (CB)]

My Lords, as usual, the noble Lord, Lord Hunt, is right on the money and I do not disagree with a word that he said. I would add one tiny little thing: the net effect of the MROs and the CHCs is that they add to the cost of motor insurance in this country so that poorer people who struggle to pay their motor insurance will find it further away from them. For that solid reason, I strongly support the noble Lord’s two amendments.

[Viscount Trenchard (Con)]

My Lords, I, too, offer my support to my noble friend Lord Hunt. I agree with his two amendments, which seek to attack one of the major menaces of the spurious claims activity in our society at present. Does my noble friend the Minister think that the FCA is qualified and able to take on all these extra tasks? Will there be a new category of authorised person within the FCA? The skills required to regulate CMCs of various kinds may not be exactly the same as, for example, those required to give financial advice. It is also worth checking that there are not any other areas of spurious activity or the encouragement of spurious claims which are already being practised by unscrupulous people.

[Lord McKenzie of Luton (Lab)]

My Lords, as we have heard, these amendments would add two types of services to be brought within the definition of claims management services and hence within the regulatory provisions provided for in the Bill. The amendments were introduced with some passion. We support both of them.

We heard from the noble Lord some of the unacceptable behaviours of those delivering these services which warrant such inclusion. As part of the rampant compensation culture, we have heard about holiday sickness claims, which we will come on to debate, and artificial claims being stirred up by advertisements. Of course, medical reporting organisations and credit hire companies are involved in the claims process for road traffic accidents, providing medical reports and temporary replacement vehicles—an important service, perhaps, but it should be undertaken and conducted properly.

By way of background, we make it clear that we support the provisions in the Bill which enable the regulation of CMCs to transfer to the FCA but need to be reassured that it will be properly resourced to meet the totality of its new tasks—a point touched on by the noble Viscount, Lord Trenchard. The FCA currently regulates around 56,000 authorised financial services firms.

At present there is an exemption, which the noble Lord, Lord Hunt, touched on, from the regulation for claims management companies which employ solicitors on the grounds that such entities are under the jurisdiction of the Solicitors Regulation Authority—which, incidentally, bans cold calling. However, it is suggested in some quarters that the SRA regulation is less rigorous than the current MoJ regulation of CMC activity and as a consequence some CMCs are changing their business structures to take advantage of this. Is the Minister satisfied that there is no weakening of the regulation through this route?

There is another, tangential matter I would like to raise, of which I have given notice to the Minister—frankly, seeking a meeting rather than a detailed answer to an amendment. This is to do with tax refund companies. These are businesses which help people who have had too much tax deducted at source from their wages complete and submit the paperwork required by HMRC to claim back the overdeducted tax. There is absolutely nothing wrong with that—it is a vital service. This will include employees who have spent their own money on tax-deductible employment expenses; for example, care workers who do mileage in their own cars. Tax refund companies generally make their money by making high volumes of low-value, simple claims that they charge fees for. While some of these tax refund companies make sensible claims and charge proportionate fees for the service they provide, others are less scrupulous. It is these which we want to focus on. It is worth noting that tax refund companies’ bread-and-butter activities—refunds based on unused personal allowances —have recently been curtailed by HMRC’s auto-reconciliation service, which makes it harder for them to stay in business.

How do the companies work? There are some similarities with the points made by the noble Lord, Lord Hunt. They are mainly online businesses, typically with fun and appealing websites that contain eye-catching claims such as “Let us maximise your refund” or “We make claiming your refund easy”. They may somehow imply that they have an inside track with HMRC. They often pay for advertising space so that they appear at the top of search engine results, where their ads are not necessarily distinguishable from organic search results by those who are not IT-savvy. The costs vary but there can often be two elements: a minimum admin fee—the Chartered Institute of Taxation says that it has recently seen a minimum fee of £90—and a charge based on a percentage of the refund, such as 20%. Percentage fees of up to 40% for relatively straightforward claims have been seen, which are a scandal. The company will normally mandate the refund back to itself in the first instance and collect its fee before transferring the balance to the individual. Often, the two fee elements taken together will outweigh the tax refund if it is small. Sometimes the companies add on charges for transferring money to a bank account, which they are not always transparent about. The pricing structure incentivises poor practices such as putting in inflated or fraudulent claims.

Who do these companies target? It can be workers who are unaware of or confused by the rules around when a refund might be due. The work-related travel expense rules are a particular example. It can be people who may have an inkling that they are due a refund but who lack confidence or knowledge of the tax system to initiate a claim themselves, or those who could probably organise a claim but do not have the time or the inclination.

Some tax refund companies meet a genuine need in the market and operate according to appropriate standards but the area is unregulated, like the issue we have just been debating, and there is a huge spectrum of providers. The Chartered Institute of Taxation’s report on tax refund companies identified a range of consumer protection issues with some of the more exploitative agents and made pages of recommendations. While some of these were taken up, many were not. We acknowledge that HMRC has invested in improvements in certain areas by offering online channels to apply for refunds, restricting agent access to taxpayers’ pay and tax details, and dealing with refund agents who gave the impression that they were in some way affiliated to or approved by HMRC. However, tax refund companies continue to proliferate, which suggests that things are still too complex or that taxpayers are still being swayed because of things such as overinflated promises or misleading information as to fees.

I apologise for taking the Committee’s time to focus on this issue. I was not quite sure how to address it otherwise. My purpose is to give this an airing and to seek from the Minister the opportunity of a meeting in due course, together with the Chartered Institute of Taxation and the Low Incomes Tax Reform Group, to delve further into the issue. Having said that, I reiterate that we support the two amendments proposed by the noble Lord, Lord Hunt, and do so enthusiastically.

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[Baroness Altmann]

My Lords, I, too, support my noble friend’s Amendment 70A. He has highlighted a very important issue. It is right that in Clause 17 the Government are looking to cap the charges made by claims management companies, but this should apply to personal injury claims as well as those for financial products and services. The cap on charges is also important because there will be problems in future associated with the increased use of the small claims track when it is extended to cover cases up to £5,000 for personal injury claims.

I was going to quote the same figures as the noble Earl, Lord Kinnoull, but I have also heard from a number of holiday operators and other representatives of the travel industry that resorts are now threatening to sharply increase prices for British holidaymakers or even withdraw all-inclusive packages from the UK market altogether. This situation is damaging the reputation of British holidaymakers and I support my noble friend’s amendment.

[Viscount Trenchard]

My Lords, I, too, strongly support my noble friend Lord Hunt’s amendments. I was completely horrified to hear the statistics relayed by the noble Earl, Lord Kinnoull. It does not surprise me because I travelled to Spain last summer—not on a package tour but they nevertheless somehow know where you are and I started to receive unsolicited texts and emails from people inviting me to make claims for the bad food or being sick. I just deleted them, of course.

I also agree with my noble friend Lady Altmann that, where possible, the cap on fees should be broadened because I would have used a CMC to pursue a claim against an airline. This was not this summer but the summer before, when our flights were cancelled and I tried to get refunded by an airline. My daughter had booked on the same flights through a different travel agent, but in the end neither of us has made a successful claim, although we are both entitled to. It was too difficult because the airline had contracted the flight to another airline. When you are entitled to a refund for a service that was contracted but not delivered—as in the cancellation of a flight—then, as the Committee is well aware, it is made extremely difficult for you to receive reimbursement. When I received an unsolicited email from a CMC about cancelled flight claims, I was quite tempted to use it. But even though I had virtually given up on the claim against the airlines, I decided not to because a quick examination of the company made me suspicious. I also thought it would absorb in fees most of what it might get back, so I decided not to proceed.

Once such companies are capped in what they can charge, I will feel much happier about using their services because of what they specialise in and because it is made extremely difficult for individuals to pursue refund claims themselves. In many areas there may be a route whereby the individual can do the same thing as a CMC, and do it for free, but it is often made so difficult. It is intended that people will get bored or be too busy to go on waiting, while listening to music and pressing “1” or “2”.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I support the amendments in the name of the noble Lord, Lord Hunt. Once again, he has made his case brilliantly and without having to resort to metaphors about drones or anything else. He seemed this time to be firing a set of missiles rather closely to his right. I am sure progress can be made on this important issue and want to make two points.

First, to pick up on the point made by the noble Baroness, Lady Altmann, in the representations that many of us have received there was a slightly larger package than just the question of claims management companies. There was a question about the small claims limit going from £1,000 to £5,000 and I would be grateful if the Minister, when he responds, could give us some better information about how that impacts on this issue. There is also a narrower question about an amendment to the public liability protocol, which I do not fully understand. But I hope the Minister will rise up in his helicopter, or whatever he is currently riding in to get to his scenic views, to give us a view of what this is about. There is an exception for claims arising overseas in these areas, which seems a little unfair because if a claim is genuine then it should be possible to mount it in whichever jurisdiction. If the package travel regulations are UK law and need to be resolved in that way, it seems odd if an exception is made for those who want to claim from an overseas position.

My other point would be that while I think we are all in the same place in wanting to see this issue resolved, I hope it will not be at the expense of genuine illnesses. The Minister might want to make sure that there is an avenue open when he comes to respond. Rather like the noble Viscount who has just spoken, I had a problem with a holiday—not a package holiday but one booked through an agent. It was in Italy, at a villa which was a nice place to be, but it became overrun with rats; I think this was on day three. So numerous were these creatures, and of such an extraordinary puissance, that they climbed up on to the veranda and entertained us while we tried to eat. They then ran round the bedroom while we tried to sleep, knocking over our toothpaste and other things in our bathroom. We eventually had to retreat to the top floor of the villa and barricade ourselves in.

The response from the locals was that they were “ratti”, which I think is the Italian for rats. We were therefore fairly clear what they were. At one point the locals produced some materials to capture these rodents. It consisted of a large plane of wood, about the size of the Dispatch Box, on which was placed some translucent gooey substance. They did not want to kill these things—they were very eco-friendly and against that—but just wanted us to capture them. But the blooming things were so strong that when one ran up and landed on that sticky substance, it could not quite get all four legs off at once but it got one limb up and then just hopped off. It was not very effective.

We sued the company that let us this property. The interesting thing about suing holiday companies—I am sorry, this is a long way into my point—is that holidays exceptionally attract damages because holidays are not repeatable instances. In other words, under English law you can claim for exemplary damages for a holiday lost in a way that you cannot for other damage. That is an issue that need not detain us in the Bill, but given that that particularity exists in the law, I hope that the sense of the amendments would not damage genuine claims. Illness does occur on holiday, and sometimes rats invade, and we would want to make sure that people can sue properly and, given that it was a holiday that was spoiled, get the additional money available without any recall or loss.

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[The Earl of Kinnoull]

My Lords, I strongly support the noble Baroness, Lady Altmann, and I thank her for allowing me to add my name to her amendment. Obviously, I also strongly support the thinking behind the amendment in the names of the noble Lord, Lord Sharkey, and the noble Baroness, Lady Kramer, and I just wish to add one or two points.

There was a very helpful Which? report in November 2016 detailing the full horror of nuisance calls in the UK. For the report, telephone calls in 18 cities were sampled. In 17 of the cities—the survey took place over a long period—more than a third of all the private phone calls were nuisance calls, and in Glasgow, which topped this terrible table of nonsense, more than half of the calls in the sample were nuisance calls. The top type of nuisance call was about PPI, which of course is firmly a CMC nuisance. In commenting on the November 2016 report, Keith Brown MSP, the relevant Scottish Minister, was quoted as saying:

“These calls are a serious problem that can cause both emotional and financial harm, particularly to some of our most vulnerable citizens”.


A very horrible statistic in the report was that four in 10 people in Scotland who had received these calls felt intimidated by them. It is barbaric behaviour.

I was delighted to read in their manifesto what the Conservatives are going to do about cold calling on pensions. Like, I think, every other noble Lord in the House, I feel that we must use this opportunity to extend the ban to this area as well. I suppose that it is the businessman in me who does a quick upside/downside analysis. My upside analysis has a reduction of emotional and financial harm and intimidation, and my downside analysis has nothing. Perhaps the Minister could tell me whether she agrees with that analysis. I hope that she feels as I do—that it is a social necessity that we carry through one or other of these amendments and put it in the Bill.

[Viscount Trenchard]

My Lords, I too express support for both the amendment proposed by the noble Lord, Lord Sharkey, and that proposed by my noble friend Lady Altmann, supported by the noble Earl, Lord Kinnoull. I ask my noble friend the Minister to consider both amendments sympathetically. I expect that she is likely to say that she agrees with the amendments in principle but that this is not the time or the place for such a measure. However, surely it would be popular with the public to introduce a complete ban on unsolicited cold calling across a broad range of activities.

The Law Society and the ABI have both called for a crack-down on nuisance calling of all kinds. ABTA has also suggested that the Bill provides an opportunity to introduce an outright ban. As noble Lords are aware, solicitors, who are more tightly regulated than CMCs, are already banned from making unsolicited calls.

What I find particularly annoying is that if you answer your phone when you are overseas, you have to pay. I get so angry when this happens to me that I am sometimes more likely to start a conversation with the cold caller than I am to just hang up, which would obviously be the sensible thing to do. I say, “Do you know it’s three in the morning and I’m in Japan, and this is costing me money?”, but I find that the cold callers are not a very nice type of person in general and they are not sympathetic. My noble friend Lady Altmann mentioned that every year there are 51 million cold calls in respect of personal injury claims. In that case I am getting many more than my share, because I get about one a week.

It is a difficult area because, as noble Lords have pointed out in earlier debates, the FCA is not necessarily the most sympathetic regulator, and I agree with the noble Earl that we should look more closely at equivalent regulators in other countries. I had the privilege of serving under the noble Lord, Lord Burns, on the Joint Committee on Financial Services and Markets in 1999, which set up the FSA. We talked at great length about getting the balance right between protecting the industry and protecting the interests of the consumer. We did not necessarily get it right in the sense that the culture needs to evolve in a direction which is more sympathetic to the consumer.