Time for a socio rethink

‘Fifty shades’ author E L James said, “Language evolves and moves on. It is an organic thing. It is not stuck in an ivory tower, hung with expensive works of art and overlooking most of Seattle with a helipad stuck on its roof.”

But language shapes the way we think, and now actually determines what we can think about, what is socially correct to think about.

In an increasingly politically correct world, where a new form of self righteous ‘Puritanism’ seemingly reigns supreme, language has taken a totally new direction in describing many things that previously had a particularly clear understanding as being something else, encouraging some form of self serving, hand wringing, soul cleansing, social inclusion that absolves society of blame or stigmatisation whilst simultaneously removing or erasing common sense, liability, responsibility, guilt and reason from the supposed victim.

The English language today is being highjacked by some crazy variations of evolution.

According to new ‘diversity’ guidelines, normal persons in the presence of people with disabilities should not be referred to as ‘normal’ but rather non-disabled persons. Clumsy individuals are now called “Uniquely coordinated”, if lazy you are now called “Motivationally deficient”, if you spend spend spend you are now a “Negative saver” and if you are one of life’s failures, in addition to being called vulnerable you are now deemed to have “Achieved a deficiency”.

If you are Gwyneth Paltrow and Chris Martin you do not split up, you have a “Conscious Uncoupling”.

Public facing governmental offices and hospitals now have ‘clients’ AND we now no longer have customers- we have consumers’. Grrrrr

I have become increasing concerned about the prevalence of the term ‘vulnerable’. It seems that in today’s touchy feely, oh so caring society, the term has become overused to the point that it is now meaningless.

There is not a day that passes where you will not read or hear the word. The BBC is particularly adept at its misuse, regulators, civil servants and politicians likewise.

Vulnerable as an adjective is described in the Oxford dictionary as “exposed to the possibility of being attacked or harmed, either physically or emotionally”. A thesaurus throws up many other words like exposed, sensitive and defenceless.

In our industry the vision regulators want the word conjuring up is meant to display advisers’ clients as under ‘fiscal attack’ from unscrupulous and uncaring firms.

What is your view of a vulnerable person?

Is it determined by physical or mental disability? Is it financially related?

Vulnerable is now used as a noun to describe or quantify a social collective, in this case the collective has been formed by way of being seen to be someone cast aside by society, a victim not responsible for their plight and dependent upon someone, anyone, coming along to reset the counter to zero so that they can do it all over again.

Vulnerable in many cases today is now used to describe someone who previously was known as simple, stupid, irresponsible, reckless, dangerous, a scourge on society and in doing so the truly vulnerable are done a great disservice.

Regulators are very fond of claiming that “vulnerable consumers” must be protected. A very good example of this is the latest FCA thinking on “Debt management firms selling ‘unsuitable’ plans”.

We are now looking at the very real possibility of regulation actively protecting people from their own stupidity. That is not a regulatory mandate yet we seem to be powerless to stop it. It is another way of unaccountable bodies generating work to justify their own existence instead of doing what it says on the can.

The FCA is the Financial Conduct Authority; it is not the Feckless Cuddling Authority.

In many cases these will be the same ‘vulnerable’ people who avoid the FOS and go to CMC’s in pursuit of a fast buck. After all where there is stupidity there is a stash of cash- for someone, although it is often the case that the stash is for the lawyers as they prey by statute on the vulnerable rather than protect.

So let’s have a rethink FCA, BBC, Parliament. Vulnerable is that person in a wheelchair, that person who cannot move, see, hear, walk, talk, and feel and is truly reliant on someone else to care for them.

It is not someone who was previously known in a different socio economic time as a waste of space and should be avoided at all costs.

Next week I get started on ‘hard working families’.

Visit www.panaceaadviser.com for more or Listen to the audio of this article

MAS now grooming complaints?

Advisers, and others who fund the Money Advice Service will not be best pleased.

With MAS also not hitting the spot with the TSC, I came across by complete accident last week an attempt by the MAS to groom complaints, not quite what one should expect from such an organization is it?

They have a section on ‘Endowment Complaints and it stated the following:

If you feel you were mis-sold your policy you need to put your complaint in soon, because there is a deadline looming.

You have either:

  • six years from when the policy was sold, or
  • three years from when you realised the policy was potentially mis-sold

For many people this latter date is the most important and it coincides with when they received a letter from their endowment provider warning them of an expected shortfall in their policy.

However, if you didn’t fully understand this letter at the time and have only just realised you may have been mis-sold your product, there is still time to put in a complaint. Just make it clear that you are within three years of when you fully understood the situation regarding your endowment and realised it was mis-sold.

This statement was followed with a link to the ‘Which’ website to download a standard complaint letter.

This is very worrying and you would think that the MAS would consult theDISP rules before making such a statement.

The DISP rules are very clear:

The Ombudsman cannot consider a complaint if the complainant refers it to the Financial Ombudsman Service:

(1) more than six months after the date on which the respondent sent the complainant its final response or redress determination; or

(2)  more than:

(a)  six years after the event complained of; or (if later)

(b)  three years from the date on which the complainant became aware (or ought reasonably to have become aware) that he had cause for complaint;


(3) in the view of the Ombudsman, the failure to comply with the time limits in DISP 2.8.2 R or DISP 2.8.7 R4,5 was as a result of exceptional circumstances;


1An example of exceptional circumstances might be where the complainant has been or is incapacitated

Oscar Wilde once said that “Most people die of a sort of creeping common sense, and discover when it is too late that the only things one never regrets are one’s mistakes”.

It’s not working here MAS is it?

And it is certainly not fair and reasonable to suggest that by simply saying you did not “fully understand” is sailing very close to the wind in the eyes of many advisers and we are pleased that our research has now resulted in this ‘error’ being corrected.

Grooming a ‘consumer’ to be, shall we say, economical with the truth to obtain pecuniary advantage is simply inappropriate.

gertcha, cowson, gertcha

It’s called the tipping point.  Individually and as an industry we all have one, it’s the point when enough is enough and action has to be taken.  

My tipping point arrived last April.  

Previously I had suffered from two fraudulent attempts to empty my wallet by one West Country CMC that subsequently suffered enforcement by the MOJ.  Unfortunately a little slap and a ticking off is of small consequence when the reward for chicanery and sharp practice can be £000s.

For too long advisers have had to assume the position and endure the aftermath of devious and predatory claims management companies running rampant without effective challenge.

Readers will know that I have long lamented the ease with which CMCs are able to draft barely literate letters suggesting mis-selling and containing detailed lists of rule breaches.  These claims are supposedly on behalf of their clients – many of who remain totally unaware of the allegations being levelled or only believe they have been mis-sold because of false claims made by the claims management company.

Such complaints waste time and money and may even involve the intrusion of an Ombudsman investigation even when no product exists and therefore no mis-selling can be present.

Matters will be different from now on because on October 9th Accrington County Court issued a verdict which will have a profound impact on CMCs and their future behaviour.

In April I received a grammatically inept letter from Aims Reclaim, a trading title of Aims Legal Ltd, a Blackburn-based CMC.  Aims Reclaim and its parent company currently operate under special measures imposed by the MOJ.

Their letter requested the return of my client’s premiums in line with FOS guidelines listing specific seven allegations relating to a PPI plan.  I have never arranged PPI so my sharp retort threatened legal action for defamation.

Aims Reclaim refused to retract so I invoiced them for £100, for wasting 40 minutes of my time.  This they declined to pay, citing an obligation to investigate under FCA rules.

As a result I commenced a small claims action, which they chose to defend thereby resulting in a four-hour train journey to Accrington court. 

Having heard my representation, and having seen a letter from the client confirming that no such allegations had been made by her, the Judge invited Aims Reclaim to present its case.  Its representative claimed that the letter was merely an ‘enquiry’.  Judge rejected this pointing out that it contained seven specific allegations.

After studying case law the Judge established that Aims Reclaim owed a duty of care and that their letter, with its unsubstantiated allegations, had breached that duty.  The descriptive she used was “lamentable” and I was awarded my £100 plus costs. 

Aims Reclaim then had the audacity to request a confidentiality clause, which the Judge summarily refused.

What does this mean for advisers? 

Firstly, it is clear that should any CMC send a letter listing alleged breaches, which have not been specified by their client, then they are likely to find themselves receiving an invoice for wasting the adviser’s time. 

Secondly, professional liars who claim to work on behalf of their client will have to extend far greater caution because I, and no doubt others, will have no hesitation in repeating this exercise.

Thirdly, can I ask that the banks, building societies and insurers follow this example?  If every unwarranted fishing expedition and fraudulent attempt was met with an invoice then the present plague of CMCs would be cured.

It is far too easy for advisers who have wasted their time investigating erroneous or fraudulent claims to simply breathe a sigh of relief when able to put the matter to bed.  However, it is only by exposing these claims and ensuring CMCs pay the price that we can start to cure the industry of this canker.

Alan Lakey

Highclere Financial Services

Editors comment:

As many will know, Alan and I have been on a bit of a crusade against CMC’s for some time, more of which can be found on this site. This case should be taken as setting a precedent, all firms should now look carefully at claims coming in from CMC’ s and if they fit the ‘tipping point too far’ category, follow Alan’s lead.

You can see the court judgment documents here


Advisers may not be aware but during the summer the Claims Management Regulation Unit revised and re-issued their Publication Policy to give them more scope to publish action taken against CMCs. This was ahead of development of their website to include an ‘Enforcement’ page where you can find recent enforcement action and current/ongoing investigations. The page can be found here –https://www.claimsregulation.gov.uk/enforcement.aspx – with enforcement actions and investigations on separate tabs.

Finally, and I would appreciate any adviser or compliance feedback on this. If you see clearly false claims coming in from CMC’s, possibly even from clients, immediate recourse to the courts ‘could’ place a stop on the matter going to the FOS as they cannot investigate cases if legal action in regard to the matter is underway?





Stupid is as stupid does

So if the Daily Mail is to be believed, the banks are about to embark on another compensation round, this time in relation to card fraud protection insurance. Unfortunately, even with a new regulator in place, this trend of retro-identification of miss selling will continue, and for years to come.

Why is it that year after year after year we see regulation with the benefit of hindsight demonstrating that so many consumers have, or so it would seem, been ‘ripped off’ by miss-selling and maybe even miss-buying of financial services products?

Well, in my opinion, it is because the toxicity of miss selling, where it may exist within financial products and instruments, is not discovered and dealt with before release upon the ‘innocent consumer’ as there is no regulatory mechanism to do so.

If miss selling is seen in the same place as a crime in the eyes of the consumer and regulator, then we should be asking what preventative measures are and can be taken.

We do not expect to see drinks, drugs, cosmetics, food, cars and airplanes allowed to be let loose on the ‘unsuspecting’ public before they get a licence from an authorized accreditation body demonstrating they are fit for purpose. This often involves long trials and even longer signing off processes.

The resulting accreditation these products are given places much responsibility at the door of the organisation issuing the certificate confirming it is safe to ‘swallow’, ‘apply’, ‘wear’ ‘drive’ or ‘fly. And consumers expect nothing less.

AMI boss Robert Sinclair recently and very astutely observed that the “Civil Aviation Authority keeps planes, our skies and airports safe for £126m, the Food Standards Agency (yes that other FSA) only costs £110m, so what is it that makes our new FCA so expensive at £446m”?

And he has a very valid point. The aforementioned agencies test for ‘fit for purpose’ and take considerable responsibility for that. They also licence many who work with these products, drugs and services. And when accidents happen they investigate, determine the cause and ensure a repeat of it does not happen.

And in financial services? Er no!

So, perhaps with a new regulator, the focus of the industries money, all £446m this year, should be targeted on a strategy of using intelligence, experience and even common sense to ensure that the toxicity is detected and sterilised before the product is released.

That way the consumer can be comforted when seeing that a ‘fit for purpose kitemark’ stamped on the product they purchase confirms that a body, person or persons has tested it, said it is fit for purpose, specific purposes in fact and has taken responsibility for that affirmation.

So when Robert says that the CAA keeps our skies sake at a cost of £110m, can you imagine the aviation equivalent of financial services miss-selling? Only in this case death is the consumer outcome.

If a plane falls out of the sky, you do not see fines being levied on the manufacturer by the CAA, you see action to ensure that whatever was missed that caused the crash is engineered or trained out so that it does not happen again.

For many years, I and many other commentators have said that so much wasted cost and consumer detriment can be taken out by the regulator if foresight was used rather than hindsight. This principle operates in every other part of consumer life, why not in financial services too?

Only the most stupid person could possibly disagree surely?

It’s about the compensation stupid

We read that “BP has launched an appeal against “fictitious” and “absurd” oil spill compensation payouts

Matters have got so bad that they have asked a Judge to “temporarily halt the payments being made to businesses on an ‘economic loss’ basis”.

BP presented a number of examples to illustrate the madness of the compensation feeding frenzy citing businesses that were nowhere near the coastline affected, one firm was many miles away from the Gulf of Mexico oil spill and it “enjoyed bigger profits during the year of the spill in 2010 and yet still received millions in compensation”.

This is looking like the first example of a very major international business having its future and shareholders interests affected because it agreed to pay compensation in what seemed to be a fair and generous way with the ‘outcome’ (yes that word again) being that fairness was replaced by greed, and as the song goes ‘lawyers guns and money’.

BP has already sold a substantial part of its business to pay out compensation and fines as a result of the disaster and has said it could be ‘irreparably harmed’ by the payouts because they could cost it ‘billions‘ more than it budgeted for when it agreed to a settlement in April 2012.

In its application to the court some of the examples BP offered of ‘absurd’ claims included: a $21 million payment made to a rice mill in Louisiana situated some 40 miles from the coast that earned more revenue than in spill year of 2010 than in the previous three years.

It also made reference to $9.7 million paid out to a highway, street and bridge construction company in northern Alabama, almost 200 miles from the Gulf, which does no business in the region and for which 2010 was its best year on record.

As they say when America sneezes we get flu.

Compensation culture in the UK, fuelled by the pestilence and plague of CMC’s no win no fee legal offers, legal aid and regulatory action has ensured that the compensation trough can see plenty of snouts taking their fill.

Influenza matters in the UK have got so bad that we now see a proliferation of fraudulent claim ‘reporting’ sites.

Here are some examples: the government has Report Benefit Fraud, the insurance industry has the Insurance Fraud Bureau and the Engineering Council sees they have a serious problem around qualifications citing three examples that they are trying to combat.

We even see sites to alert potential fraudsters about how their actions are detected. And one real whopper of a site is dealing with a whole load more.

Have we become a nation of fraudsters created by consumer protection ‘on acid’ where consumers take no responsibility for their own bad decisions because a regulator will make sure somebody else pays where it would appear from the levels of fraud it was not their fault at all.

Regulation is a vital part of UK life today, sadly in many ways, yet it adds so many additional costs and burdens on good, honest businesses.

Surely something must be done to ensure that those who have actually lost out, through no fault of their own, get appropriately compensated and those that have not get dealt with robustly by the legal system, and without the protection of legal aid or in our industry the seemingly automatic call for funds, without limit or logic, from the FCA, FOS and FCSC.

Only 10 Percent?

I read with a mixture of incredulity and despair that discussions regarding ways to put an end to PPI claims have broken down with no positive ‘outcome’ for those consumers miss-sold PPI.

That was the despair.

The incredulity?

It was reported that Natalie Ceeney, chief executive of the FOS, claimed last month that only 10% of customers ever sold a PPI policy had so far made a claim for compensation.

Ms Ceeney has criticised the banks for “demonising customers” and said the ombudsman would be hiring a further 1,000 staff in the next six months to help deal with PPI claims.

What is going on out there?

Whilst not doubting there has been miss-selling of the product, a whole industry of ambulance chasing CMC’s  have long ago set up camp (quicker than the current Romanian model seen at the disused Hendon FC ground) to feed upon misfortune and with only 10% having claimed, it is clear now what the CMC sees as opportunity.

In January the FOS said it expected to see a 42% rise in new claims in the current financial year, driven by an unprecented number of PPI cases, which had “dramatically exceeded” their assumptions.

That would, if my math’s is correct take the figure to 14.2% of customers miss-sold a PPI policy.

The PPI issue and CMC’s has been a scourge to advisers and also it would seem the FOS. But with all this noise and massive marketing spend providing encouragement to claim, if only 10% of those ever ‘sold’ such policies have expressed discontent and made a claim, are we looking an industry attempt to now ‘groom’ claims from the remaining 90% that appear not to be troubled or simply do not care?

The latest estimates show that the total cost to banks for miss-selling PPI is likely to come to £25 billion, almost double the near-£13 billion banks have already put aside.

In a recent consultation paper, the FOS said consumers were currently referring more than 5,000 new PPI cases each week, and it expects to receive around 250,000 new cases by the end of the current financial year (2012/2013) – against a planning assumption of 165,000 cases.

These figures are simply staggering, how many are genuine is not certain (given that many claimants have not had any such policy at all) yet Britain’s biggest banks have already set aside over £12bn to compensate customers. Lloyds, who has the most customers of any UK bank, has earmarked £5.3bn for claims.

If Ms Ceeney is correct and only 10% of those ever sold a PPI policy have complained (although the sums and numbers involved are looking high) this is not a miss-selling scandal and it seems a little odd that an organisation so resource stretched should be seen spending time trying to encourage the 90% not apparently concerned, to complain.

Compensating consumers who are genuinely concerned with a demonstrably legitimate grievance is the correct thing to do, seeking out those that really do not care does not.

And that may be why the banks have decided enough is enough?

Stinking badges removal. CMC update.


Alan Lakey reports, that at long last, Parliament has entered into the debate regarding claims management fraudsters.

Labour MP Nic Dakin stated in unequivocal terms that fraud is rampant, that the free to use FOS is being utilised as a weapon by CMFs who can lie and deceive secure in the knowledge that it costs them nothing yet may win them 30% of some fraudulent compo.

Whilst the MOJ does its best it is under-resourced and bogged down by ineffective rules. Hopefully this additional pressure will ensure that the conmen and opportunists will be driven from the sector. Claims Management Companies.

The following transcript makes for a positive and worthwhile read:

Commons debate transcript from the Motion made, and Question proposed on 19th  March 2013

7.4 pm

Nic Dakin (Scunthorpe) (Lab): The claims management industry has grown dramatically in recent years. In 2007, it was estimated that there were 400 claims management companies. There are now more than 3,000. The value of the industry in terms of annual turnover continues to grow and is now estimated to be £774 million, which is up 33% on last year.

Unfortunately, not all claims management companies behave responsibly. Consumer research conducted by the Association of British Insurers found that about four out of five adults in the UK had received unsolicited texts encouraging them to pursue claims for accidents or mis-sold financial products. In just 8% of cases, the individual who was contacted had had an accident or held a policy against which there might be a claim.

A Which? mystery shopping exercise found widespread rule breaches, misleading statements and unfair contract terms by a significant number of claims management companies. If you have received a text message or seen a TV advert telling you that you have thousands of pounds of unclaimed payment protection insurance, Mr Deputy Speaker, you are not alone. The research by Which? shows that 93% of people have.

In 2011-12, the claims management regulator received 10,000 complaints about claims management companies from consumers and firms. The cold calls, high-pressure tactics and misinformation that are used mean that the behaviour of some CMCs is extremely damaging to members of the public, particularly elderly and vulnerable people. Furthermore, the damage to businesses from the tenacity and dishonesty of some CMCs is very concerning. As the Motor Accident Solicitors Society points out, problems with the regulatory structure have allowed such bad practices to flourish. That is why that organisation and others have called consistently for better regulation.

The mis-selling of payment protection insurance by banks was one of the biggest mis-selling scandals ever. The courts have rightly said that those who were mis-sold PPI must be compensated. However, when claims management companies enter into the fray, further injustices occur, as a scandal of mis-selling begets a scandal of misclaiming. The claims management companies wilfully exploit the structures that are in place to protect consumers by submitting countless claims that have little or no merit, with no fear of a financial penalty. They have nothing to lose and everything to gain.

Jim Shannon (Strangford) (DUP): Every one of us as elected representatives has had complaints from our constituents on this matter. One of my concerns is that when people who are vulnerable financially receive information about such claims, they think that there is nothing to lose and that they will get the money. Does the hon. Gentleman think it is time that these companies were regulated so that they do not raise people’s expectations so that they think they will get the money, when at the end of the day they will not and, indeed, will be out of pocket?

19 Mar 2013 : Column 904

Nic Dakin: The hon. Gentleman makes a good point. A constituent of mine who works for a company told me recently that a member of the public, on the advice of a claims management company, had rung it up and given it the spiel. My constituent said to her, “I’m sorry, but we haven’t been selling PPI for the last 15 years.” The lady on the other end of the phone said, “Oh, I’m really disappointed. I thought I was going to get some money.” The hon. Gentleman is exactly right that such companies raise expectations and exploit vulnerable people at a difficult time. That really should be stopped.

Based on their cold-calling fishing expeditions, claims management companies write numerous letters to businesses simply because a client recalls that they may have had a financial transaction with a company, even though no evidence is provided. The CMC-generated letters always accuse the businesses of mis-selling, citing a stock list of reasons, despite the fact that in many instances no PPI was ever sold. CMCs also buy leads, many of which have been generated by companies that follow up accident whiplash claims and then try to instigate other claims where no client discontent exists.

Ironically, members of the public do not need to use any kind of intermediary to submit a PPI claim. The consumer will be charged about 30% of their compensation if they use a claims management company, but nothing if they submit the claim themselves. The consumer group Which? estimates the average PPI claim to be £2,750, costing the consumer around £835 in CMC fees.

Claims management companies are not just unnecessary, they can be damaging to both consumers and businesses, and an example from my constituency shows how serious that can be. Ian Broadbent’s company, Blue Sky Mortgages, has to respond to a continuous stream of vexatious claims from claims management companies on behalf of clients who have never been sold PPI by his business. In some cases, his business has had no dealings with the claimants whatsoever.

That is more than a mere annoyance. When a company disputes a PPI claim, the Financial Ombudsman Service steps in. However, there are clear problems with the way in which disputed claims are handled. Businesses are charged up to £850 per case, whatever its merits, and although no fees are charged for the first three claims against a company—soon to be extended to the first 25 claims—the rate at which CMCs generate claims, often with the most scant client information, means it is not long before a business has to pay out large sums of money for doing absolutely nothing wrong.

FOS investigations further damage businesses by dragging claims on, and it can take several years for a dispute to be resolved. That can be extremely damaging for businesses, with the uncertainty and unpredictability of FOS investigations adding further pressure to businesses struggling to survive in these austere times. Businesses have no right of appeal against FOS decisions—a right that consumers and claims management companies retain—and that is at odds with some fundamental principles. Claims management companies can file claims with absolute impunity. There are no charges for false claims, and if a claim succeeds, they know the decision is final.

Jackie Doyle-Price (Thurrock) (Con): I congratulate the hon. Gentleman on securing this important debate on an issue that has concerned our constituents for

19 Mar 2013 : Column 905

some time. Does he agree that it is perhaps time that this became a less risk-free business for claims management companies, particularly in the field of PPI where, frankly, reckless profiteering is being carried out by companies with absolutely no risk to them?

Nic Dakin: The hon. Lady makes an excellent point. We have a situation in which claims management companies can never lose, however vexatious the claims they pursue, while businesses targeted by those companies always lose. She is right: it is time to balance the risk in a different way.

Kate Green (Stretford and Urmston) (Lab): I am glad that my hon. Friend has initiated this debate. Does he agree that some of the Government’s policies that will mean people are no longer able to access lawyers—the fast-track small claims procedure, for example—will mean that claims management companies are able to expand their businesses? People will not be able to go it alone, but neither will they be able to access proper legal advice?

Nic Dakin: My hon. Friend draws attention to a very real danger in the current changes.

In his letter to me, Mr Broadbent drew attention to the following unsatisfactory way in which the FOS acted. After downloading the FOS standard PPI claim form, a client completed it. He answered the questions honestly in the form of tick boxes, and stated that he did not recall the sale process. The claim was declined, yet nine months later a CMC made the same complaint on behalf of the same client. In this case all the boxes were ticked, stating that the client had a clear recollection of the sales process and how the product was mis-sold. That was not considered a vexatious complaint and it is being considered by the FOS. It says that it must ignore the original complaint and review it on the basis of the claim submitted by the CMC. That will not strike anyone as a sensible, fair or efficient way to proceed.

The FOS does good work resolving disputes in many areas, but its ability to deal appropriately with PPI disputes is compromised by the sheer volume of complaints it receives. Last year, complaints about PPI made up 60% of all complaints dealt with by the FOS, yet CMCs made no contribution to the running costs of the FOS. Greater control over CMCs, and a system where they will be charged for making unsuccessful claims, would help free up the FOS to deal more effectively with other matters in its inbox.

The Ministry of Justice is to be applauded for making some headway in its control of CMCs, but there is more to do. The ban on referrals in personal injury cases, which is due to come into force in April, will hopefully reduce harassment of members of the public who have been involved in accidents. The flipside of that is that claims management companies may focus more on PPI claims and look to diversify into new areas of vexatious claiming. Indeed, there is already some evidence that they are turning their attention to mortgages.

The Financial Services Authority acknowledges that there has been no wholesale mis-selling of mortgages, yet some claims management companies are already sending template letters to businesses, claiming that

19 Mar 2013 : Column 906

mortgages were mis-sold. The letters are easily produced but take a lot of time to answer—sometimes as long as 10 or 12 hours—because of the complexity of the mortgages.

The claims management regulator set up by the Ministry of Justice regularly shuts down CMCs that deliberately submit vexatious claims, but the number of claims companies is too high for the regulator to keep up. The number of companies is rising—it has doubled in the past two years to more than 3,000. The competition between them results in more vexatious claims and ever more aggressive tactics. In the years 2011-12, the regulator undertook only 150 visits and audits of firms, which is fewer than 5% of authorised CMCs.

I would be grateful if the Minister responded to a number of questions in her reply. Does she support the call of Which? for improved regulation of CMCs? Will she take steps to ban cold calling and cold texting? Will she take action to ensure that, in any advertisement, CMCs make clear to the client the benefit of their taking their claim directly, without intermediary, to the FOS? Will she place a duty on CMCs to ensure that the claims they submit contain accurate information? Claims companies should be required to exercise due diligence and must reasonably believe that there is a possibility of a valid claim. They must not be allowed to continue to fish for claims with very little consequence.

CMCs play an influential role in the UK’s compensation and redress regimes. They are responsible for almost half the complaints sent to the FOS, but make no financial contribution to its operating costs of around £107 million. In the light of that, will the Minister explore how CMCs can make a financial contribution to FOS running costs? For example, CMCs could be required to pay the £500 FOS case fee when they have not undertaken adequate checks to ensure there is a policy in place. The FOS dismisses charging for CMCS in “Charging for our work: modernising our case fee arrangements”, saying that charges will be passed on to customers. A simple solution would be to ban the collection of up-front fees and cap the percentage of a claim that a CMC can take. That would prevent their passing on to customers the reasonable charges that I argue should be levied on the industry.

Will the Minister take steps to ensure that CMCs accept leads only from organisations that are also regulated by the claims management regulator, organisations that are exempt introducers, or organisations that are regulated by another body, such as solicitors? There is concern that the FOS is insufficiently independent of the regulator, which is currently the FSA. Can that be scrutinised? Can appropriate action be taken to ensure a clear separation of powers and responsibilities? It seems unreasonable that a business must adhere to the adjudicator’s findings without a right of appeal and with no knowledge of the adjudicator’s qualification for making a decision. Can that be looked at with a view to equalising the playing field?

Finally, can steps be taken to ensure that the Ministry of Justice and the CMR have sufficient powers and capacity properly to regulate the business in a way that is fair to consumers and businesses? After all, we should support businesses such as Mr Broadbent’s. His business lends to other businesses and helps them to expand, fuelling the growth of the economy.

19 Mar 2013 : Column 907

Claims companies are making huge amounts of money and filing huge numbers of claims against whatever businesses they can, regardless of whether they have mis-sold or even sold a PPI. At their worst, CMCs do not help the consumer, and damage businesses and clog up the regulators. Their proliferation must be stopped.

7.18 pm

The Parliamentary Under-Secretary of State for Justice (Mrs Helen Grant): I congratulate the hon. Member for Scunthorpe (Nic Dakin) on securing this debate on claims management companies, which remain topical. Clearly, there are serious conduct problems among a minority of CMCs, but it is worth remembering that some provide a useful service in identifying consumers who have suffered loss and supporting them in obtaining redress when they would otherwise receive nothing. While we have made good progress since the start of regulation, I acknowledge that there is more that can be done and should be done to improve the conduct of CMCs, and to strengthen consumer protection across the claims management industry. To that end, the Ministry of Justice claims management regulation unit remains committed to providing a stable and robust regulatory system that the public can trust. I am glad that the hon. Gentleman acknowledged the good work that the CMR unit is doing. It is stepping up its approach to improving CMC compliance and strengthening enforcement action through a range of measures.

The CMR unit has established a specialist compliance team to deal with poor practices used by some CMCs when handling claims for mis-sold payment protection insurance. In the past year, the compliance team has conducted more than 100 audits of CMCs assessed as high risk, issued warnings, and taken other forms of enforcement action where problems have been found. This work continues and includes targeting CMCs that are submitting poorly prepared or spurious claims, charging up-front fees and operating call centres, to ensure that sales calls are compliant.

On the problem of nuisance calls and text messages, we fully support the work of the Information Commissioner’s Office in enforcing the legislation that protects individuals from this form of direct marketing. We also recognise the benefits of a joint approach to tackling the problem. Before I go further, however, it is important to point out that spam texts that market claims services are generally not sent by CMCs, but by other organisations that generate leads for other businesses, including CMCs. The CMR unit is working with the ICO to investigate and take enforcement action against CMCs accepting leads or claims from this type of marketing.

Within the personal injury claims sector, most of the issues relate to businesses or organised groups attempting to defraud the insurance industry. The CMR unit contributes valuable intelligence and expertise, and has worked with a range of organisations and agencies to tackle fraud, including the Insurance Fraud Bureau, and police forces on a number of operations throughout the year. Those operations have resulted in arrests, charges and convictions. Much has therefore been achieved at a time when resources are limited. Since regulation began in 2007, the CMR unit has removed the licences of more than 900 CMCs across the sector. More recently, a major crackdown resulted in more than 400 CMCs

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being warned, suspended or having their licences cancelled. That has been done with no impact on the public purse, as regulation is self-financing.

So far, I have covered the good work that the CMR unit is doing to drive out malpractice. What I want to do now is to look further ahead to the programme of reforms we are introducing this year. Our reform plans give us all huge opportunities to do things better and to ensure that the regulatory framework continues to deliver effectively. This year’s reform agenda includes four main measures. Following a consultation exercise, we are proposing to tighten the conduct rules for CMCs. Most critically, we are proposing that contractual agreements between CMCs and consumers must be signed by clients before any fees can be taken. CMCs will only be permitted to refer to being regulated by the claims management regulator, rather than by the Ministry of Justice. CMCs will have to inform their contracted client of any variation or suspension of their authorisation. We intend to publish our response to the consultation shortly and, subject to the relevant Government clearance processes that can take some time, we expect implementation of the proposed changes to follow this summer.

Last year, we ran a public consultation on imposing a ban on CMCs offering financial rewards, or similar benefits, to potential claimants as an inducement to make a claim. The ban will come into effect from 1 April. Also from 1 April, we are implementing the primary recommendations contained in Lord Justice Jackson’s review of civil litigation costs, including in particular a ban on the payment and receipt of referral fees in personal injury cases and fundamental reform to the no win, no fee conditional fee agreements. That will include, in particular, a ban on the payment and receipt of referral fees in personal injury cases and fundamental reform to the no win, no fee conditional fee agreement.

Kate Green: I am aware of the changes being made to referral fees, but is the Minister aware of the concern that, because they will be brought within the ambit of the conditional free arrangements, CMCs will be able to use those CFAs as a means simply of replacing referral fees?

Mrs Grant: I think that our reforms have looked into these issues carefully and we have anticipated many of the issues to which the hon. Lady is alluding. I was going to touch on this in my speech anyway. We feel that our reforms have been carefully considered and are proportionate, appropriate and balanced, and that we now have to start to attack our compensation culture, which has been building up for many years. Obviously, the reforms will be reviewed within three to four years, and if further changes need to be made in order to create further balance and fairness, of course that can be considered.

Nic Dakin: The Minister is spelling out some of the good work being done through the Ministry of Justice and the CMR, but may I pick up on the point made by the hon. Member for Thurrock (Jackie Doyle-Price) about the balance of risk? The Financial Ombudsman Service places all the risk with businesses, which means that CMCs can act with impunity and without risk. Is the Minister talking to her colleagues across government to ensure that the excellent work being done by the MOJ is met in parallel by the other Departments and so can be reinforced?

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Mrs Grant: Again, I am grateful to the hon. Gentleman for acknowledging the good work of the CMR unit in the MOJ. Of course, we are working across government to try to get this right. I hear exactly what he says, but we need to take a balanced approach and to accept that not all CMCs are bad. We want targeted, appropriate and proportionate action against the bad companies, but we also want the good ones to continue.

Lastly, this year we intend to commence powers under the Legal Services Act 2007 to extend the Legal Ombudsman’s restriction in order to provide an independent complaints and redress scheme for clients dissatisfied with the service provided to them by the CMC they have contracted with. Consumers will benefit, because the Legal Ombudsman has wider powers of redress, including the ability to order compensation.

I want to pick up on some of the issues raised by hon. Members. I believe that I have already touched on my attitude to balance and our civil reforms to funding and the costs. I would like to reassure the hon. Member for Scunthorpe that I firmly believe that, notwithstanding the reforms, meritorious claims will still be permitted. It is avoidable and spurious claims that we want to stop.

On the issue of banning cold calling and texting, I should say that nuisance calls and text messaging are a serious problem that can cause considerable annoyance, as clearly it has done in the case of the company in the hon. Gentleman’s constituency. The Information Commissioner’s Office can take enforcement action and has lead responsibility in this area, but we of course work very closely with it, and will continue to do so. The commissioner can impose penalties of up to £500,000 for serious breaches of privacy. Indeed, I was informed a few days ago that for the first time it recently issued fines totally £440,000 to two illegal marketers responsible for distributing millions of spam e-mails.

In our opinion, a blanket ban on cold calling would be disproportionate. Other businesses operating in similar industries such as debt management are not subject to a blanket ban. Next year, CMCs will have to have a signed contract before they can take any up-front fees from an individual, and that will tackle the main detriment resulting from cold calling.

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On the issue of charging CMCs, we fear that that could penalise consumers who find the services of CMCs helpful in making complaints. We worry, too, that any fee would be likely to be passed on to the consumer. Also, we do not believe that charging a fee is the correct approach to protecting consumers. Protection will ultimately be achieved by effective regulation.

Jackie Doyle-Price: I hear what the Minister is saying, but I draw her attention to PPI claims, for which the banks have well-established processes that involve only the filling in of a form. The presence of an up-front fee might make consumers think twice about giving their business to a company, and about doing the work themselves instead.

Mrs Grant: I hear what my hon. Friend is saying, but I am afraid that I fundamentally disagree with her on this point.

The hon. Member for Scunthorpe asked who might be the best regulator for these purposes. I believe that the MOJ is in a good position to continue in that role. We can act now, and we are doing so. The CMR unit has a good track record of making a difference using relatively limited resources, and we have had a good response from stakeholders, who are supporting the regulation remaining with us. I also believe that it is not a good idea to transfer responsibility at a time of substantial change.

In conclusion, the CMR unit will step up its approach, and resources will be devoted to tackling the underlying problems that exist in the conduct of some CMCs. I do not believe that institutional reform is necessarily the answer, especially at a time when the industry is undergoing such fundamental change. The industry will of course have its role to play in driving up standards. CMCs must give consumers and defendants more confidence in the system by ensuring that they comply properly, fairly and adequately with the rules.

Question put and agreed to.

7.32 pm