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8 Jun 2006 : Column 425

Citizens Advice frequently has to pick up the pieces when claims farmers leave consumers high and dry. Its 2004 report, “No win, No Fee, No Chance”, referred to a woman who had tripped and suffered cuts and bruises. Three years later, she was offered £500 compensation from the company concerned, but on the advice of a claims management company she it turned down and was encouraged to borrow money to pursue the claim. She eventually won £1,200 but that was deducted from her loan, leaving a shortfall of £950, which is still accruing interest. Clearer information about the risks and the likelihood of additional costs that would have to be met from her own pocket might have led to a better outcome.

Which? has recently carried out research into claims management companies dealing with endowment mis-selling and found wide variation in the fees charged and services given. It also found evidence of scaremongering by some claims management companies, which suggested that claims brought by individual consumers themselves would almost certainly fail. The evidence is actually to the contrary.

My Department and the Advertising Standards Authority have recently funded comprehensive market research into the impact of claims advertising, which, among other things, confirmed that people have limited understanding of what is involved. Terms such as “No win, no fee” are often misinterpreted and the need for a third party to be at fault is not always apparent. The research is being presented to the bodies responsible for the various advertising codes, and they are considering whether changes to the codes are necessary.

Mr. Philip Hollobone (Kettering) (Con): National Accident Helpline is based in my constituency and has a strong reputation in the field. The company has pointed out that the definition of financial services or assistance in clause 3(3) is far too broad and could capture such groups as before-the-event insurers, liability insurers and individuals passing on claims to solicitors. The company feels that the Minister should provide more clarity about who the Government actually want to be caught by that mechanism.

Bridget Prentice: We want to capture people who abuse the system and who do not give consumers all the information they need to make a clear and considered decision. Obviously, there will be costs and I shall talk about them later, but we estimate, for example, that the cost of direct regulation could be up to £1 million a year. However, that is not a huge cost in terms of ensuring that consumers get a fair deal. In some cases, people end up with massive debts as a result of bad, or no, advice.

I want to make it absolutely clear that we firmly believe that anyone with a genuine claim should be able to make it quickly and easily, but vulnerable people are being targeted so additional safeguards are needed. We want greater transparency, better quality control and a better service for consumers.

Mr. Kevan Jones (North Durham) (Lab): Does my hon. Friend agree that it is important that claims handlers who sell after-the-event insurance should be caught by the regulation? Companies such as FreeClaim IDC—a scam organisation in the north-east—make most of their money not from the claim
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that they sell on to solicitors but from the “insurance” policy that they sell to claimants.

Bridget Prentice: I shall not comment on the individual company that my hon. Friend mentions as I do not know the details, but he is right to point out that it is scandalous, and a scam, when people think that their case is being made on the basis of their understanding of no win, no fee, but discover that because they signed up for an insurance premium they are paying back large amounts over a long period to companies that make large profits as a result.

Part 2 provides a proportionate and responsive framework for regulating the industry. Clause 3 defines claims management services and provides an order-making power to target the regulation in specific areas. Companies will need to seek authorisation only if they are providing a regulated claims management service. We intend to provide by order that the regulated services include personal injury, mis-selling of financial products, employment, criminal injury compensation and housing disrepair. The Bill is flexible. It allows new areas to be brought into the regulatory net as problems arise and it will allow areas to be removed from regulation if the problems subside.

Clause 4 allows a range of options for delivering regulation. We want an efficient solution that will be effective for the benefit of consumers. We are entering a period of considerable change in the legal services market. Last month I published a draft Legal Services Bill, which will reform the regulatory structure of legal services. I expect the regulation of claims management services eventually to be integrated into that structure. Another uncertainty is the impact of statutory regulation on claims management companies. I have to tell the House—in a sense this reflects the point raised by the hon. Member for Kettering (Mr. Hollobone)—that that is unpredictable. Recent analysis by Datamonitor predicts that the industry might shrink considerably, because once stringent regulatory standards are applied, false claims will, by their nature, disappear. In the short term, we need a flexible solution that can tackle the worst abuses. A longer-term solution can then be found once the landscape is more certain and we can have a more considered look at it.

Mr. Alan Beith (Berwick-upon-Tweed) (LD): Is it not time that we knew what the Government’s preferred option is, given that the clause allows the regulator to be an existing organisation, a non-departmental public body or the Secretary of State. When will we know the Government’s preferred solution?

Bridget Prentice: I could hardly have handed the right hon. Gentleman the question, but the next line in my speech is: we have considered various options on the best way in which to proceed, including whether there should be a role for the Claims Standards Council. I can confirm that the Department for Constitutional Affairs will initially regulate the industry directly. My right hon. Friend the Secretary of State will be the regulator. The core elements of direct regulation will be: the Secretary of State as regulator, with day-to-day responsibility for regulation delegated to a civil servant with the appropriate skills and experience; a monitoring and compliance function, contracted out to a trading
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standards unit responsible for supporting the Secretary of State in carrying out authorisation, monitoring, complaints and enforcement; and a non-statutory advisory committee made up of representatives of the financial services and insurance industries, the legal profession, consumer groups and the claims management sector.

Our prime concern is to safeguard consumer interests. To that end, those wishing to provide claims management services will be required to seek authorisation from the regulator. The system will have teeth. As a condition of authorisation, authorised persons will be required to comply with strict rules and any person breaking the rules risks having their authorisation suspended or removed. There will be a clear mechanism for dealing with consumer complaints and authorised persons will need to have indemnity insurance. I hope that that covers the right hon. Gentleman’s question.

Mr. Heald: Does the Minister not understand that many of us are extremely disappointed that it is not a well established regulator in the financial field that is taking on the task? The Financial Services Authority or the Office of Fair Trading would be much more preferable, because they are experienced. We are just flying blind with a temporary lash-up solution. It will not be anywhere near enough, given the sort of people who run the claims farmers.

Bridget Prentice: The hon. Gentleman seems to be the only person in the House who does not know that neither the OFT nor the Financial Services Authority wanted to do the job. My right hon. Friend the Secretary of State will do it, with, as I have already pointed out, a senior civil servant and a trading standards organisation to oversee matters. Once the structure in the draft Legal Services Bill is in place, these things will all be part of that regulatory system.

Simon Hughes: I was smiling at the picture of the Lord Chancellor, as he gives up his speakership of the Lords, becoming the regulator with teeth. Following the Minister’s helpful answer to my right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith), will she just add one more comment about the Government’s thoughts on the future? At the beginning, the regulator will be the Secretary of State. Is that intended to be a permanent solution or is it intended that, in time, we will move on and that, for example, one of the regulators that comes out of the draft Legal Services Bill will do the job?

Bridget Prentice: The hon. Gentleman has got things absolutely right. This is intended to be an interim solution. In a sense, the Bill itself is an interim solution before the draft Legal Services Bill, and the structure that it provides, come into place. It is the intention that the regulation would come under the umbrella of the legal services board and the frontline regulators that will be in place.

Mr. Michael Clapham (Barnsley, West and Penistone) (Lab): Will my hon. Friend ensure that the people who are going to be involved in the regulation liaise with the
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coal health team at the Department of Trade and Industry, because they have got innumerable examples of the scams that are being used? It would be good for the people who will be involved in the regulation to know how those scams work.

Bridget Prentice: My hon. Friend makes an important point. We are all aware of some of the atrocious behaviour that has taken place in some areas on the coal health scheme. I take his point and will make sure that the lessons are learned so that that is not repeated.

The regulation needs to be proportionate. Clause 5 gives the Secretary of State the power to exempt persons or classes of person. Our central focus must be to tackle commercial claims farmers. We therefore intend to exempt solicitors, barristers, legal executives and those who are subject to regulation by the Financial Services Authority. However, those exemptions will apply only to the extent that those concerned are already regulated in the provision of claims management services. A solicitor who offers claims management services through a business separate from his practice would still need to be authorised. That approach will avoid duplication in the regulation of claims management activities, although some organisations may find that they are regulated by more than one regulator for different activities. We have no wish to impose unnecessary burdens on those who provide valuable services on a voluntary basis. Individuals who offer advice voluntarily, such as those working on a voluntary basis in a legal advice centre, are specifically excluded from the scope of the legislation.

Tony Lloyd (Manchester, Central) (Lab): Does my hon. Friend accept that, as with solicitors and voluntary organisations, trade unions provide a vital service to their members and members’ families and that, where those trade unions operate properly on a not-for-profit basis, there is a strong case for exemption, as long as there is a form of internal regulation? Will she say how the Government intend to proceed on the concept of the exemption of trade unions where they are not operating as claims farmers, as the Union of Democratic Mineworkers perhaps has done in Nottingham?

Bridget Prentice: Amazingly, my hon. Friend again brings me to my next point. He is quite right about not-for-profit organisations, voluntary organisations and the vast majority of trade unions. We intend, therefore, through secondary legislation, to exempt charitable organisations that provide claims advice and to exempt independent trade unions, where they provide services to their own members and their own members’ families.

I know of and agree with the genuine concerns about the activities of a small number of trade unions, particularly in relation to coal health compensation schemes. My right hon. Friend the Secretary of State and I take those concerns seriously. However, few would dispute the high quality of legal services provided by the vast majority of trade unions to their members. The power to exempt by secondary legislation will give us the necessary flexibility to exempt trade unions, but, where appropriate, that can be withdrawn for individual unions where the consumer is losing out.

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Mr. Heald: I welcomed the second half of the sentence. Does the Minister not accept that there is concern that trade unions are completely unregulated in this area? If she is saying that solicitors, the majority of whom behave properly, and all other professionals in the area are to be regulated, how can she possibly justify exempting trade unions, especially given the concerns about the way in which some trade unions have behaved? Is that simply because the Labour party is funded by the trade unions and many unions are solvent only because of their claims management activities?

Bridget Prentice: Quite frankly, I will leave the last part of the hon. Gentleman’s comments for my hon. Friends to dismiss appropriately.

The exemption will apply to independent trade unions on the certification officer’s list. If the hon. Gentleman thinks that such trade unions are not already subject to a form of regulation, he misunderstands some of the legislation that the Conservative Government put in place. Trade unions that are not classified as independent will need to seek authorisation, as will those that provide regulated claims management services to non-members.

The Secretary of State will be able to attach conditions to an exemption. We will draw up a code of practice with the trade union movement that will provide a benchmark by which trade unions’ provision of claims management services can be judged. The Secretary of State, as the regulator, will take into account evidence of any breach of that code when considering whether to remove the exemption of trade unions.

Mr. Dismore: I wholeheartedly welcome part 2 of the Bill, unlike part 1. As a former trade union solicitor, I think that the trade union schemes are important, especially owing to the way in which test cases can be financed through unions’ legal systems. The last big case that I did before I was elected to the House was against the former Home Secretary, the right hon. and learned Member for Folkestone and Hythe (Mr. Howard). It was supported by a consortium of 11 trade unions and led to the end of attempted reforms to the criminal injuries compensation scheme, which would have cost the victims of criminal injuries a sum in the region of £150 million.

Bridget Prentice: My hon. Friend makes his point well.

I should tell the hon. Member for North-East Hertfordshire (Mr. Heald) that I know from the numerous discussions that I have had with trade unions that they generally do not charge for their services when acting on behalf of their members. We have already condemned the practice of organisations that abuse the system and would thus be caught by the Bill.

The new framework for legal services regulation will provide a suitable opportunity to review the effectiveness of the arrangements. For firms falling within the scope of the regulator, we need to make sure that the regulation can be enforced effectively. The regulator will thus have the power to investigate breaches of the rules and the code of practice. He will be able to require the provision of documents and to obtain a warrant to enter and search premises. The regulator will also be able to impose sanctions, including suspension and withdrawal of authorisation.

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Mr. Kevan Jones: Does my hon. Friend agree that the hon. Member for North-East Hertfordshire (Mr. Heald) was actually correct when he said that trade unions are not covered in this area at present? However, they will be covered when the Bill is passed because the vast majority of trade unions, given their high standards, will be able to meet the code of conduct that she is outlining, whereas the rogue elements, such as the UDM and others, will fall foul of it. Does she further agree that trade unions do not charge for their legal services at the moment because, since we have had conditional fee agreements, money that comes to the union, which allows it to fight the test cases, is brought back as a success fee from the other side?

Bridget Prentice: My hon. Friend is absolutely right. Labour Members understand the role of trade unions in looking after the interests of their members, although, in fairness, we should not expect a Conservative spokesman to do so. We will draw up a separate code of practice for trade unions under the exemption through consultation and discussion with the TUC. I am sure that all trade unions that wish to be part of the system and to look after their members’ best interests will abide by the code of practice.

Mr. David Hamilton (Midlothian) (Lab): I thank my hon. Friend for giving way, as she has done many times. Will the code of practice reflect the amount of work that is done between trade unions and the voluntary sector—there is a cross-over every single day? I represent a Scottish mining area and, indeed, am a member of the National Union of Mineworkers. In my office, it is common practice to discuss every single day with the voluntary sector and citizens advice bureaux how we can get best practice in the area. That should be recognised in the code.

Bridget Prentice: My hon. Friend makes a good point. It is not surprising that Labour Members know and understand that vulnerable people, whether they are members of trade unions or individuals who go to citizens advice bureaux, need expert legal help. Trade unions, citizens advice bureaux and other organisations are freely available to give such help. We should commend them for doing that, rather than suggesting that they do so for their own profit.

Let me return to the regulation. If people carry on providing claims management services regardless of the regulation, the regulator will be able to apply for an injunction to prevent them from continuing to provide claims management services while he investigates and gathers evidence to proceed with a prosecution. If necessary, he can also request a warrant to enter and search premises. Anyone who is found guilty of the offence could face a term of up to two years’ imprisonment, a fine, or both. I think that I can say to the House that the cowboys’ days are numbered.

Mr. Hollobone: We would all support the end of cowboy practices in the sector. However, it is important to companies such as the National Accident Helpline, which is in my constituency, that the Bill create as level a playing field as possible. Given the good reputation of trade unions that has been mentioned by Labour Members, should not the burden of proof be the other
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way round? Should not the Bill cover everyone? If trade unions and others have a good reputation, they could then prove why they should be exempt.

Bridget Prentice: The very fact that we are having this discussion demonstrates that the trade unions, voluntary organisations, the Law Society and other bodies with different forms of regulation have shown that the exemption is an appropriate way of proceeding. I repeat for the hon. Gentleman’s benefit that anyone who is given an exemption, but breaches the code of practice, could be brought back into the regulatory framework. The beauty of the Bill is that it is sufficiently flexible to allow that to happen. The comments of Labour Members show that trade unions are doing excellent work in the vast majority of cases. We can have every confidence that that will continue under the exempted procedure.

The framework provides flexibility to respond to a changing market. It is proportionate and closes the regulatory gap, and it will provide similar regulatory requirements for claims farmers and solicitors. It will also send out a powerful message to those who attempt to evade regulation.

Mr. Nicholas Brown (Newcastle upon Tyne, East and Wallsend) (Lab): I sense that my hon. Friend is drawing her remarks to a close. Before she concludes, can she tell us anything about mesothelioma and the recent case in the House of Lords? As she is aware, there is a substantial desire—certainly among Labour Members—to return the law to where it stood before the recent judgment. Is the Bill a suitable vehicle for doing that, and will the Government bring forward proposals so that the House can vote either to uphold the law as it is at present, or to put it back to what it was before? The House should make the final decision.

Bridget Prentice: My right hon. Friend makes an important point about a tragic, serious case. He knows that the Secretary of State and I have a great deal of sympathy with the concerns that he and others have expressed about the judgment in Barker v. Corus and that we are very sympathetic to the claimants. The judgment gives rise to a number of serious and complex issues, and it is important that we get the answer right. I know that several of my hon. Friends have had discussions not only with the Secretary of State but with the Prime Minister himself, and the Prime Minister said yesterday that we are looking carefully at the context of this Bill.

We hope to be in a position to make an announcement shortly. I would be happy if it were possible for something to be done through the Bill, but it may not be the appropriate vehicle—we have people considering the matter carefully. I can assure my right hon. Friend that the Government are committed to doing all that we can to ensure that the victims in these cases are properly looked after. I will ensure that discussions on the issues continue and that we come to a conclusion as swiftly as possible.

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