The
Committee consisted of the following
Members:
Chairman:
Mr.
Martyn
Jones
Bellingham,
Mr. Henry
(North-West Norfolk)
(Con)
Burgon,
Colin
(Elmet)
(Lab)
Carswell,
Mr. Douglas
(Harwich)
(Con)
Cash,
Mr. William
(Stone)
(Con)
Clappison,
Mr. James
(Hertsmere)
(Con)
Ellwood,
Mr. Tobias
(Bournemouth, East)
(Con)
Foster,
Mr. Michael
(Worcester)
(Lab)
Harris,
Dr. Evan
(Oxford, West and Abingdon)
(LD)
Hoey,
Kate
(Vauxhall)
(Lab)
Hughes,
Simon
(North Southwark and Bermondsey)
(LD)
Laxton,
Mr. Bob
(Derby, North)
(Lab)
Linton,
Martin
(Battersea)
(Lab)
Prentice,
Bridget
(Parliamentary Under-Secretary of State for Constitutional
Affairs)
Strang,
Dr. Gavin
(Edinburgh, East)
(Lab)
Stringer,
Graham
(Manchester, Blackley)
(Lab)
Truswell,
Mr. Paul
(Pudsey)
(Lab)
Wright,
David
(Telford)
(Lab)
Glenn
McKee, Committee
Clerk
attended the Committee
Third
Delegated Legislation
Committee
Tuesday 5
December
2006
[Mr.
Martyn Jones in the
Chair]
Draft Compensation (Claims Management Services) Regulations 2006
10.30
am
The
Parliamentary Under-Secretary of State for Constitutional Affairs
(Bridget Prentice): I beg to
move,
That the
Committee has considered the draft Compensation (Claims Management
Services) Regulations
2006.
The
Chairman: With this it will be convenient to consider the
draft Compensation (Regulated Claims Management Services) Order 2006
and the draft Compensation (Specification of Benefits) Order
2006.
Bridget
Prentice: I am grateful that the Committee has agreed to
consider these measures together. I will try to be as brief as possible
before taking questions on some of the technicalities.
When the Compensation Act 2006
was debated in the House, I said that the Government wanted to see a
major change in the quality of service. We wantedto see an
improvement in the behaviour of claims management businesses and, above
all, we wanted to help improve safeguards for consumers. We consulted
widely on the orders and regulations and our response was published on
30 November.
The
definition of claims management services in the 2006 Act is
deliberately wide to ensure that there are no loopholes. All services
as prescribed by order will be regulated. The scope order sets out the
range of activities that are to be regulated and in relation to what
kind of claim. For example, it will cover advertising for or otherwise
seeking out persons who may have a claim, advising people on the merits
of a potential claim, referring details of such claims and
investigating the circumstances and merits of a
claim.
The types of
claim for compensation on whichthe activities of companies
will be regulated include claims relating to personal injury, criminal
injuries compensation, employment, housing disrepair, claims relating
to financial products or services, such as bank charges, and industrial
injuries disablement benefits. We are targeting those areas because
they are where the greatest risk of consumer detriment appears to
be.
The Compensation
(Specification of Benefits)Order 2006 is made under section
4(5) of the 2006 Act. It will bring claims management services dealing
with industrial injuries disablement benefits into the regulatory net.
Those compensatory benefits include reduced earnings allowance,
retirement allowance and industrial death benefits. The order will
therefore ensure that consumers seeking such benefits by engaging the
services of a claims management business will be protected by
regulation.
Simon
Hughes (North Southwark and Bermondsey) (LD): Will the
Minister tell us whether consideration was given to other benefits or
claims that a person was not getting in the first place and that could
be takenup by a claims management companyfor example,
criminal injuries claims under the Criminal Injuries Compensation Act
1995?
Bridget
Prentice: Yes, indeed, all those things were taken into
account. As I have said, that is why the scope is so wide. A regulated
item could fall outwith that, if it becomes clear that it is not
necessary. Equally, other issues can be brought into the system, so if
we see bad behaviour by a claims management service, we can bring it
within the scope of the
regulations.
The
compensation regulations are made under paragraph 8 of the schedule to
the 2006 Act, which sets out the requirements to be met by service
providers seeking to obtain authorisation and other details relating to
the operation of regulatory mechanisms. The regulations set out a range
of matters that the regulator may have regard to in making a decision
about an applicants competence and suitability, and the
regulator can impose conditions on an authorisation. Some
conditionsare imposed directly by regulationsfor
example, the requirements that an authorised person complies with the
rules made by the regulator and that if a person accepts the referral
of a potential client from an unauthorised person, the former must take
reasonable steps to ensure that the unauthorised person conforms to the
rules.
The
application form will require details about directors, partners and
anyone else capable of having a significant influence on the policy or
management of the business. It will contain information on the
regulatory action against both the business and the individual involved
and all claims management businesses with which an applicant has been
involved in the past five years. The application form will also require
details of self-certification showing that the business complies with
the rules of conduct.
Applicants will have a right of
appeal to the claims management services tribunal, which was
established by the 2006 Act, and a right to take a decision made by
that tribunal to the Court of Appeal. The tribunals rules will
be made in February 2007, when the relevant provisions of the 2006 Act
will come into effect. Under the 2006 Act, the regulator must prescribe
rules for the professional conduct of authorised persons to clarify or
expand on the requirements with which all authorised persons must
comply. For example, the rules will focus on the prohibition of
high-pressure selling, transparency of contracts, disclosure of
referral fees, complaints procedures and clients accounts, if
clients money is being held. Again, key stakeholders and claims
management businesses were consulted on the rules, which have now been
approved by my right hon. Friend the Secretary of
State.
Consumers
also need protection when things go wrong, and the regulations create
powers for the regulator to require an authorised person to have
professional indemnity insurance and a clear mechanism for dealing with
complaints. Furthermore, the regulator can review the handling of any
complaint by an authorised person and give direction on that and
related matters. There is a limited power to require redress, which is
a significant
part of the regulators powers to protect the consumer. However,
there is no power to order a cash payment, although the regulator may
direct the repayment of unjustified fees, which are fees that should
not have been charged.
It
is imperative that the legislation can be enforced effectively, so the
regulations create new powers for the regulator to investigate breaches
of the rules, to require the provision of documents or, if necessary,
to enter and search premises and take copies of such documents. The
regulators powers can be exercised following an allegation or
suspicion that a person is providing a regulated claims management
service without the appropriate authorisation, exemption or waiver, or
that an authorised person is contravening the
rules.
The regulator
must first seek information from the person or authorised person by
serving a notice requiring the provision of specified information or
documents, but if they are not provided, or if they reveal further
grounds for investigation, the regulator can go to court and seek a
search warrant. The regulator will also be able to impose sanctions,
including the suspension or, ultimately, cancellation of authorisation.
Again, there is a right of appeal to the claims management services
tribunal and from there to the Court of
Appeal.
I hope that
the Committee agrees on the importance of regulating claims management
services and putting safeguards in place for consumers. This is a
necessary step to protect consumers, and I hope that the arrangements
that I have outlined will help to achieve that aim. I commend the
regulations to the
Committee.
10.38
am
Mr.
Henry Bellingham (North-West Norfolk) (Con): It is a great
pleasure to serve under your chairmanship, Mr. Jones. I
would like to thank the Minister for the eloquent way in which she
explained the
regulations.
The
2006 Act was designed to address concerns about the growing
unprofessional conduct in the claims management business sector and, in
particular, about a range of activities extending way beyond personal
injury. We need not rehearse all the arguments that were put in
Committee and on Second Reading. The Better Regulation Task Force
report entitled, Better Routes to Redress, published in
May 2004, recommended that the Government give the sector one more
chance to sort itself out and bring in proper
self-regulation.
At
the time we arguedI want to make this point againthat
the Government did not give the sector enough time. In fact, they gave
it roughly a year or so, which was not long enough. One of the
characteristics of this Government is, If in doubt,
regulate, which is exactly what they have done here. Having
said that, the 2006 Act has gone through, and obviously we want it to
work as well as possible, which is why I am grateful to the Minister
for her various
explanations.
I
want to ask one or two specific questions before making some more
general remarks. On the status of the regulator, paragraph 7.4 of the
regulatory impact assessment shows that regulation by the Secretary of
State is intended only as an interim measure. The Legal Services Bill,
which will shortly have its Second Reading in another place, will
establish a new framework for
legal services regulation. I understand that the regulator will be
integrated into the new structure and am concerned about how it will
happen.
It is all
very well for the Government to say that the regulatorthe
Secretary of State, once the regulations come into forcewill do
his job for a period of months and then the role will be integrated
into the new structure, which will include a new legal services board
and an office for legal complaints. The regulator will presumably be
part of the legal services board, and complaints made by the public
about anyone in the claims management industry will go to part of the
office of legal complaints. Will the Minister elaborate on that?
Consumers will be concerned and need to be satisfied that the new
structure set out in the regulations will be easily integrated into the
new framework.
The
Minister has said on a number of occasions that there has been plenty
of consultation on the key aspects of the regulatory framework and the
proposed scope order. That consultation apparently took place in the
summer, between 6 July and 28 August. There has been mention of a
series of meetings that took place with key stakeholdersall
good jargon, thisregional workshops and so on. Will the
Minister tell us how many such meetings took place, where, and whether
they were on a regional basis? For example, was there a meeting in East
Anglia covering Norfolk and Suffolk? And how much did the process
cost?
The explanatory
memorandum states that during the discussions and consultation on the
scope order, the
consultation
provided
unanimous consensus that it was appropriate to include the sectors
proposed in the draft
Order.
Will the Minister
say a few more words about that? Unanimous consensus is
robust language.
Will
the Minister say a word or two about part 4 of the regulations, which
gives the regulator wide powers to determine fees? We made the point
under the Legal Services Bill, and I submit again that the fees will
need to be high enough to ensure that the regulation structure will be
self-financed. The Governments record of promising
self-financing fees structures to pay for regulatory systems has not
been without blemish. I can think of a number of examples of new
regulatory structures being brought in and the sector in question being
asked to pay additional fees. Overnight, a number of small businesses
have been hit hard.
I
shall give the Minister one example: the window fitters and double
glazing installations sector was subject to new regulation about four
years ago, and a new organisation was set up to regulate and control it
in conjunction with local authorities. All of a sudden, the industry
was hit by substantial fees, and a number of small businesses went out
of business. Have the Government considered in the regulatory impact
assessment what the impact of the fees on the industry will be? Is it
possible to have a transitional arrangement for the sector? The new
structure will cost a lot of money. We will have a regulator in due
courseat the moment, it is the Secretary of Statebut
once the system is integrated into the new legal services framework, it
will be a costly operation. The fees will cover that cost, and there
could be a big increase in the cost to businesses. Will the Minister
elaborate on that?
I
am concerned about the regulations that deal with search warrants.
Regulation 42 makes it clear that entry by search warrant must be at a
reasonable hour, as I would certainly expect. A warrant of entry to a
residence can be issued only in very limited circumstances, but I am
surprised that there is any possibility of such a warrant being issued.
The measure seems excessive, and I should be grateful if the Minister
could give an explanation. It does not apply to people who are outright
criminals, but to business men, people operating outside the scope of
the legislation and people managing claims without a licence. Giving
the authorities the right to enter the residences of such people seems
slightly excessive, although if the search warrant procedures are in
the legislation, it may be that there is no way to proceed other than
by including that power. I also note that entry and search under
warrant must be within three months of issue, which strikes me as a
long time. Will the Minister tell us whether that is normal or unique
to this legislation? In any event, three months seems a long
time.
Finally, the
Minister has said that the scope of the regulations is deliberately
wide, and she has discussed the Secretary of States power to
widen and, indeed, to lessen that scope, if the need should arise. Why
are the trade unions not within the scope of the
legislation?
Mr.
James Clappison (Hertsmere) (Con): Will my hon. Friend
reflect on whether, for example, the claims management of
miners compensation by the trade unions falls within the
general ambit of claims management as described by the
legislation?