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Public Bill Committee Debates

Draft Compensation (Claims Management Services) Regulations 2006

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 company—for 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 applicant’s competence and suitability, and the regulator can impose conditions on an authorisation. Some conditionsare imposed directly by regulations—for 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 tribunal’s 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 regulator’s 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 regulator’s 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 argued—I want to make this point again—that 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 regulator—the Secretary of State, once the regulations come into force—will 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 stakeholders—all good jargon, this—regional 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 Government’s 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 course—at the moment, it is the Secretary of State—but 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 State’s 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?
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Prepared 6 December 2006