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Claims Management Companies
Question for Short Debate
1.31 pm
Lord Kennedy of Southwark: My Lords, I am delighted to open this debate and I am very pleased that the noble Baroness, Lady Verma, is responding for the Government. I am sorry that the noble Lord, Lord McNally, is unable to be present today but I know that he has other business and would attend if he could. I received a very positive Answer from him to my parliamentary Question some weeks ago. We also had a very constructive meeting at the MoJ, which his colleague Jonathan Djanogly also attended, as did
29 May 2012 : Column 1111
representatives of Which?, the consumer organisation. I hope that today's debate will be another part of that constructive dialogue.
Claims management companies have increased in number and have come to the attention of the public and the industries in which they operate much more in recent years. You have only to turn on the TV or listen to the radio to be bombarded with advertisements from claims management companies. What do these firms do? Put simply, they manage claims for compensation on behalf of consumers to a variety of bodies and industries, and charge the consumer a fee for that service. In the case of payment protection insurance claims, that fee can be as much as 30% of the successful claim. A consumer who received £3,000 for PPI mis-selling would give £1,000 of their compensation to the CMC for, I contend, the relatively little work that it had undertaken. If the consumer decides to dispense with the CMC's services before the conclusion of any claim, charges of £90 per hour plus VAT for the time spent on the claim are not uncommon.
It is right that I should say early in the debate that many in the claims management industry act responsibly. I fully accept that it is an individual's choice to use a CMC to pursue a claim if they wish. However, large numbers of those in the industry do not adhere to best practice and a few could even be described as rouges. The Government need to take a long, hard look at the industry, look at existing provisions and make a number of changes to beef up existing regulation and ensure that existing provisions are used effectively in an industry that needs effective policing. The Government may have a preference for self-regulation and industry codes of practice. That is fine where it is demonstrated to work effectively but, where it is not, the Government have a duty to act. Noble Lords will be aware that the Compensation Act 2006 provides the broad basis for the regulation of this industry, supplemented where applicable by other consumer protection legislation and depending on the activity of FSA rules.
As I said, the claims management industry has grown considerably in recent years and more than 3,200 authorised firms operate today. The part of the industry that does not adhere to best practice will breach guidelines on cold calling, text messaging and e-mail. Some will take up-front fees and/or fail to disclose properly the amount of compensation a consumer will pay if their claim is successful. Through high-pressure sales they will sign up people who have no possibility of making a successful claim on the basis that they can get you thousands of pounds in compensation. A few weeks ago I witnessed a firm in my local shopping centre going up to people and telling them they could get them thousands of pounds in compensation. That sort of activity is prohibited under existing regulation, but unless it is effectively policed it comes to nothing.
Many noble Lords in the Bishops' Bar, the Peers' Guest Room and elsewhere in your Lordships' House have told me of the text messages and phone calls that they have received which say, "We can get you compensation for that fall you had, that car crash you were involved in or that PPI you were mis-sold". They then say, "But I haven't had a fall or a car crash, and I haven't got any PPI". This sort of activity is what
29 May 2012 : Column 1112
those sections of the industry that do not adhere to the highest standards indulge in. Also, there are companies that bombard a whole raft of financial institutions with PPI claims on behalf of a customer, without even bothering to check whether the customer has ever had any dealings with the institutions concerned before submitting the claims. This is bad practice and these are ridiculous and vexatious claims. All they do is waste the time and money of the financial institutions concerned, and divert resources from dealing with genuine complaints so that consumers wait even longer for their cases to be dealt with.
It gets worse. After dealing with the financial institution, or in some cases without even bothering to go there, CMCs have been known to submit bulk claims to the Financial Ombudsman Service, again wasting time, costing money to everyone but them and making genuine complainants wait even longer to have their complaint dealt with. Therefore, we need action from the Government and I have a number of points to put to the noble Baroness, Lady Verma. I do not expect a reply today but I am sure she will write to me, covering the points I am raising.
There is a voluntary code to which some CMCs have signed up. It is about time that we had some declaration from the Government that they want the industry to come together to agree on this voluntary code or some variation on it, and that if it does not happen very soon the Government may force their hand by regulating or legislating further. To put it another way: clean up your act or we will clean it up for you. Where companies have been found to have acted illegally, naming and shaming should be considered as well as disbarring them from further trading.
The Government should consider whether the CMC industry should have to make a contribution to the Financial Ombudsman Service. I suggest that for every ridiculous, pointless, vexatious claim submitted by a CMC to the Financial Ombudsman Service, where it is shown that the consumer has never done business with the financial institution concerned, the CMC should have to pay a £500 contribution to the working of the Financial Ombudsman Service for wasting its time.
I am worried that firms put "Regulated by the MoJ" on their literature as some sort of badge of honour or approval. That should be changed, maybe to something like, "If you have any complaints about this firm, ring the claims management regulator on the following number". I am not satisfied that enough resources are being put into the claims management regulator by the Government. When you consider that £6 billion has been put to one side by the financial services industry to pay PPI claims, you can see that a potential £2 billion in fees is a very big slice of cake. Existing regulation is deficient in areas such as training, standards and competences. We need a discussion on how these firms should operate in the future.
The Government should also give serious consideration to bringing claims management firms within the remit of the statutory Legal Ombudsman. This would mean that consumers could complain about service failure by claims management firms to an independent body and receive a fair and thorough route to redress. This
29 May 2012 : Column 1113
last point is particularly important as it is consumers who are being ripped off. I for one-and, I am sure, all noble Lords present-do not want us to be debating the claims management companies scandal and what we will do to redress it in a few years' time.
I look forward to the response of the noble Baroness and to the contributions of the noble Baroness, Lady Scott of Needham Market, and my noble friends Lady Sherlock and Lord Stevenson.
1.39 pm
Baroness Scott of Needham Market: My Lords, I thank the noble Lord, Lord Kennedy, for securing today's debate. Topics such as this, which are limited in scope but of real importance to the public, are exactly the sort suited to one hour Questions for Short Debate. The noble Lord has done us a great service by drawing attention to the many problems which are being caused by poor practice and, indeed, often illegal practice, in this area.
I suspect that had the noble Lord tabled a Question for Short Debate on the level of nuisance calls from claims management companies, he would have been overwhelmed by speakers. The number of calls from companies selling their so-called services for payment protection insurance, utility deals, home insulation schemes and accident compensation has now reached epidemic proportions. Debt consolidation services are particularly perfidious, preying as they do on those who are already vulnerable. At home in Suffolk, I routinely receive two or three calls every day from such companies. On one glorious evening, I received five. These related either to PPI, which I have never taken up, to a loan which has never existed, or to some accident which I have never had. It is irritating enough for me, but for elderly and disabled people who physically struggle to get to the phone, this is a real problem. I am increasingly finding people who have turned off their landlines because of the intrusion of these calls. I recently moved to a new flat in London. I had a new phone connected and it was a mere 30 minutes before I received my first PPI call. When the claims management industry gets your number faster than your husband does, things have come to a pretty pass.
The Financial Ombudsman Service website states that when it investigates a complaint, it expects to see evidence that a financial business has carried out a reasonable search to ascertain whether there has ever been a PPI policy. If only the dozen or so companies contacting me every week would do so. As we have heard from the noble Lord already, the impact on the financial services institutions in investigating completely bogus claims is quite large. I ask the noble Baroness: what can be done to oblige companies to do this research before they start down this route?
Will the noble Baroness also raise with Ofcom the question of nuisance calling, particularly the effectiveness of the telephone preference service? Signing up to this service is often offered up as a solution, and millions have done so. However, complaints are simply passed on to the Information Commissioner, as the telephone preference service itself has no enforcement power. Can the Minister confirm that to date there has not been a single case of prosecution under the Act?
29 May 2012 : Column 1114
Would she agree that the epidemic growth in these calls is a demonstration of the fact that the TPS system as currently set up is simply not working? Is she able to say, through work done by the Information Commissioner, what percentage of the problems is caused by overseas phone calls, which are, of course, outside the scope of the telephone preference service?
One of the most worrying aspects of all this is that of data protection. There are many organisations-scandalously, these include public bodies-to which we give information in good faith, which routinely sell on this data. Once they have the details, they sell them on, so that it is impossible to escape from their clutches. I am sure I am not alone in being alarmed that not only my home and mobile phone numbers are used, but increasingly my parliamentary e-mail as well.
The Ministry of Justice website has a large section dedicated to claims management issues. I read with interest that companies should:
That leads me to reflect that either the companies which are doing the calling are not registered, or that they are registered and are flouting the rules. Perhaps the definition of "high pressure selling" needs to be tightened up. In any event, will the Government consider ways in which the public could more proactively report this kind of behaviour, enforcement could be made, and action could be taken when transgressions are found?
There is a trade body called the Association of Regulated Claims Management Companies, to which companies engaged in these activities can be affiliated. It offers a form of accreditation, unlike the Ministry of Justice, which simply registers companies and strikes them off if they transgress. The Motor Accident Solicitors Society has made the valid point to me that this is a complex area, and people often need help to make claims for legitimate injuries. It is entirely in the interest of good practice in the industry to weed out the bad people and ensure that they are removed. Can the noble Baroness say what sort of dealings the Government have with these trade bodies and how they might work more closely with them in the future?
Finally, will the Minister undertake to hold discussions with the Ministry of Justice to see how a higher profile might be given to how the public can deal with these issues? The MoJ website is highly factual, but does not go in for bold statements. Certainly, in this place, it is the personal injury sector which has been most complained about; however, it is actually the financial services sector which is really worrying the public. The financial services sector has less than a third of authorised businesses operating in this sphere, but it gets more than 90% of the complaints. Most of those complaints are about either cold calling or about up-front fees. As the noble Lord, Lord Kennedy, has already said, the MoJ report for last year records 3,213 authorised businesses in this field, an increase of 91 over the year. More than 1,000 were suspended or had surrendered their licences in some way.
Question for Short Debate
1.31 pm
Asked By Lord Kennedy of Southwark
- To ask Her Majesty's Government what action they are taking to ensure that all claims management companies operating in the United Kingdom deliver services to a high standard.
Lord Kennedy of Southwark: My Lords, I am delighted to open this debate and I am very pleased that the noble Baroness, Lady Verma, is responding for the Government. I am sorry that the noble Lord, Lord McNally, is unable to be present today but I know that he has other business and would attend if he could. I received a very positive Answer from him to my parliamentary Question some weeks ago. We also had a very constructive meeting at the MoJ, which his colleague Jonathan Djanogly also attended, as did
29 May 2012 : Column 1111
representatives of Which?, the consumer organisation. I hope that today's debate will be another part of that constructive dialogue.
Claims management companies have increased in number and have come to the attention of the public and the industries in which they operate much more in recent years. You have only to turn on the TV or listen to the radio to be bombarded with advertisements from claims management companies. What do these firms do? Put simply, they manage claims for compensation on behalf of consumers to a variety of bodies and industries, and charge the consumer a fee for that service. In the case of payment protection insurance claims, that fee can be as much as 30% of the successful claim. A consumer who received £3,000 for PPI mis-selling would give £1,000 of their compensation to the CMC for, I contend, the relatively little work that it had undertaken. If the consumer decides to dispense with the CMC's services before the conclusion of any claim, charges of £90 per hour plus VAT for the time spent on the claim are not uncommon.
It is right that I should say early in the debate that many in the claims management industry act responsibly. I fully accept that it is an individual's choice to use a CMC to pursue a claim if they wish. However, large numbers of those in the industry do not adhere to best practice and a few could even be described as rouges. The Government need to take a long, hard look at the industry, look at existing provisions and make a number of changes to beef up existing regulation and ensure that existing provisions are used effectively in an industry that needs effective policing. The Government may have a preference for self-regulation and industry codes of practice. That is fine where it is demonstrated to work effectively but, where it is not, the Government have a duty to act. Noble Lords will be aware that the Compensation Act 2006 provides the broad basis for the regulation of this industry, supplemented where applicable by other consumer protection legislation and depending on the activity of FSA rules.
As I said, the claims management industry has grown considerably in recent years and more than 3,200 authorised firms operate today. The part of the industry that does not adhere to best practice will breach guidelines on cold calling, text messaging and e-mail. Some will take up-front fees and/or fail to disclose properly the amount of compensation a consumer will pay if their claim is successful. Through high-pressure sales they will sign up people who have no possibility of making a successful claim on the basis that they can get you thousands of pounds in compensation. A few weeks ago I witnessed a firm in my local shopping centre going up to people and telling them they could get them thousands of pounds in compensation. That sort of activity is prohibited under existing regulation, but unless it is effectively policed it comes to nothing.
Many noble Lords in the Bishops' Bar, the Peers' Guest Room and elsewhere in your Lordships' House have told me of the text messages and phone calls that they have received which say, "We can get you compensation for that fall you had, that car crash you were involved in or that PPI you were mis-sold". They then say, "But I haven't had a fall or a car crash, and I haven't got any PPI". This sort of activity is what
29 May 2012 : Column 1112
those sections of the industry that do not adhere to the highest standards indulge in. Also, there are companies that bombard a whole raft of financial institutions with PPI claims on behalf of a customer, without even bothering to check whether the customer has ever had any dealings with the institutions concerned before submitting the claims. This is bad practice and these are ridiculous and vexatious claims. All they do is waste the time and money of the financial institutions concerned, and divert resources from dealing with genuine complaints so that consumers wait even longer for their cases to be dealt with.
It gets worse. After dealing with the financial institution, or in some cases without even bothering to go there, CMCs have been known to submit bulk claims to the Financial Ombudsman Service, again wasting time, costing money to everyone but them and making genuine complainants wait even longer to have their complaint dealt with. Therefore, we need action from the Government and I have a number of points to put to the noble Baroness, Lady Verma. I do not expect a reply today but I am sure she will write to me, covering the points I am raising.
There is a voluntary code to which some CMCs have signed up. It is about time that we had some declaration from the Government that they want the industry to come together to agree on this voluntary code or some variation on it, and that if it does not happen very soon the Government may force their hand by regulating or legislating further. To put it another way: clean up your act or we will clean it up for you. Where companies have been found to have acted illegally, naming and shaming should be considered as well as disbarring them from further trading.
The Government should consider whether the CMC industry should have to make a contribution to the Financial Ombudsman Service. I suggest that for every ridiculous, pointless, vexatious claim submitted by a CMC to the Financial Ombudsman Service, where it is shown that the consumer has never done business with the financial institution concerned, the CMC should have to pay a £500 contribution to the working of the Financial Ombudsman Service for wasting its time.
I am worried that firms put "Regulated by the MoJ" on their literature as some sort of badge of honour or approval. That should be changed, maybe to something like, "If you have any complaints about this firm, ring the claims management regulator on the following number". I am not satisfied that enough resources are being put into the claims management regulator by the Government. When you consider that £6 billion has been put to one side by the financial services industry to pay PPI claims, you can see that a potential £2 billion in fees is a very big slice of cake. Existing regulation is deficient in areas such as training, standards and competences. We need a discussion on how these firms should operate in the future.
The Government should also give serious consideration to bringing claims management firms within the remit of the statutory Legal Ombudsman. This would mean that consumers could complain about service failure by claims management firms to an independent body and receive a fair and thorough route to redress. This
29 May 2012 : Column 1113
last point is particularly important as it is consumers who are being ripped off. I for one-and, I am sure, all noble Lords present-do not want us to be debating the claims management companies scandal and what we will do to redress it in a few years' time.
I look forward to the response of the noble Baroness and to the contributions of the noble Baroness, Lady Scott of Needham Market, and my noble friends Lady Sherlock and Lord Stevenson.
1.39 pm
Baroness Scott of Needham Market: My Lords, I thank the noble Lord, Lord Kennedy, for securing today's debate. Topics such as this, which are limited in scope but of real importance to the public, are exactly the sort suited to one hour Questions for Short Debate. The noble Lord has done us a great service by drawing attention to the many problems which are being caused by poor practice and, indeed, often illegal practice, in this area.
I suspect that had the noble Lord tabled a Question for Short Debate on the level of nuisance calls from claims management companies, he would have been overwhelmed by speakers. The number of calls from companies selling their so-called services for payment protection insurance, utility deals, home insulation schemes and accident compensation has now reached epidemic proportions. Debt consolidation services are particularly perfidious, preying as they do on those who are already vulnerable. At home in Suffolk, I routinely receive two or three calls every day from such companies. On one glorious evening, I received five. These related either to PPI, which I have never taken up, to a loan which has never existed, or to some accident which I have never had. It is irritating enough for me, but for elderly and disabled people who physically struggle to get to the phone, this is a real problem. I am increasingly finding people who have turned off their landlines because of the intrusion of these calls. I recently moved to a new flat in London. I had a new phone connected and it was a mere 30 minutes before I received my first PPI call. When the claims management industry gets your number faster than your husband does, things have come to a pretty pass.
The Financial Ombudsman Service website states that when it investigates a complaint, it expects to see evidence that a financial business has carried out a reasonable search to ascertain whether there has ever been a PPI policy. If only the dozen or so companies contacting me every week would do so. As we have heard from the noble Lord already, the impact on the financial services institutions in investigating completely bogus claims is quite large. I ask the noble Baroness: what can be done to oblige companies to do this research before they start down this route?
Will the noble Baroness also raise with Ofcom the question of nuisance calling, particularly the effectiveness of the telephone preference service? Signing up to this service is often offered up as a solution, and millions have done so. However, complaints are simply passed on to the Information Commissioner, as the telephone preference service itself has no enforcement power. Can the Minister confirm that to date there has not been a single case of prosecution under the Act?
29 May 2012 : Column 1114
Would she agree that the epidemic growth in these calls is a demonstration of the fact that the TPS system as currently set up is simply not working? Is she able to say, through work done by the Information Commissioner, what percentage of the problems is caused by overseas phone calls, which are, of course, outside the scope of the telephone preference service?
One of the most worrying aspects of all this is that of data protection. There are many organisations-scandalously, these include public bodies-to which we give information in good faith, which routinely sell on this data. Once they have the details, they sell them on, so that it is impossible to escape from their clutches. I am sure I am not alone in being alarmed that not only my home and mobile phone numbers are used, but increasingly my parliamentary e-mail as well.
The Ministry of Justice website has a large section dedicated to claims management issues. I read with interest that companies should:
- "not engage in face to face 'cold calling', or in any form of high pressure selling".
That leads me to reflect that either the companies which are doing the calling are not registered, or that they are registered and are flouting the rules. Perhaps the definition of "high pressure selling" needs to be tightened up. In any event, will the Government consider ways in which the public could more proactively report this kind of behaviour, enforcement could be made, and action could be taken when transgressions are found?
There is a trade body called the Association of Regulated Claims Management Companies, to which companies engaged in these activities can be affiliated. It offers a form of accreditation, unlike the Ministry of Justice, which simply registers companies and strikes them off if they transgress. The Motor Accident Solicitors Society has made the valid point to me that this is a complex area, and people often need help to make claims for legitimate injuries. It is entirely in the interest of good practice in the industry to weed out the bad people and ensure that they are removed. Can the noble Baroness say what sort of dealings the Government have with these trade bodies and how they might work more closely with them in the future?
Finally, will the Minister undertake to hold discussions with the Ministry of Justice to see how a higher profile might be given to how the public can deal with these issues? The MoJ website is highly factual, but does not go in for bold statements. Certainly, in this place, it is the personal injury sector which has been most complained about; however, it is actually the financial services sector which is really worrying the public. The financial services sector has less than a third of authorised businesses operating in this sphere, but it gets more than 90% of the complaints. Most of those complaints are about either cold calling or about up-front fees. As the noble Lord, Lord Kennedy, has already said, the MoJ report for last year records 3,213 authorised businesses in this field, an increase of 91 over the year. More than 1,000 were suspended or had surrendered their licences in some way.
)