Ian
Pearson: In the course of debate in Committee, we shall
provide additional detail, which may help those who follow our
proceedings. However, as I said a few moments ago, there will be court
rules, which will be consulted on. That is
important. I
want to go back to two points made by the hon. Member for Fareham.
First, I want to make it clear that financial services is a sector in
which there has been a history of mis-selling and other scandals, and
that is why the Government think the sector appropriate for collective
proceedings. Consumer complaints, for instance, have risen from 31,000
in 2001 to 128,000 in the year to March 2009. It is intended that
collective proceedings will be appropriate not just where the law is
unclear, although obviously, where the law is unclear, collective
proceedings will definitely be
relevant.
Mr.
Hoban: Where the law is clear, should we not expect the
regulator to take action and not require consumers to go through the
court
process?
Ian
Pearson: The hon. Gentleman talked about defaults, and the
default position is that we have effective regulation, which should
sort out problems. However, in real life, in some areas individuals
will always have complaints, which they may feel have not been
adequately addressed. We should not circumscribe the rights of
individuals who want to take legal action. In the Bill, we are helping
the action to take place on a collective rather than an individual
basis. The
hon. Gentleman made a number of points on both sides of the argument.
He gave the views of the consumer advocacy groups, which are strongly
in favour; and mentioned some of the concerns felt by people in the
industry about how the system might operate. I think that he came down
on the side of saying that we ought to have the provisions in the Bill.
It is important that we have both opt-in and opt-out. I want to
emphasise that there is no necessary, once-and-for-all division between
having an opt-in case and an opt-out case; cases may need elements of
either procedure. The hon. Gentleman gave some examples of why
different approaches
might be necessary. Certainly, clause 19 provides for the court to be
able to change the basis from opt-out to opt-in as issues and
circumstances
arise. For
example, after the generic issues have been determined, it might be
helpful if the court could require group members to opt in. The court
could then deal with individual distinctions and issues for the
purposes of making different awards and categories. We can all foresee
instances in which cases might continue on one basis, but we can also
envisage situations in which one might need to switch during the course
of the case. Having the flexibility to do so is important, and giving
that power to the court is the right thing to do. I think that that
answers the broad thrust of the last of the hon. Gentleman’s
arguments, and I hope that the Committee can agree to clauses 18, 19
and
20.
Ian
Pearson: I think that the hon. Gentleman was about to
withdraw his amendment.
Mr.
Hoban: As the Minister helpfully prompts from a sedentary
position, I think I was about to withdraw my
amendment. I
do not expect the Minister to respond on this point, because we have a
difference of view on the subject, but my concern is still that the
regulator should be in a position to take action where the law is clear
and where a regulatory matter has given rise to the concerns. There is
a danger that the regulators will be able to push to one side their
responsibility for consumer redress and for ensuring that the consumer
problem is resolved by saying, “It’s okay; if they are
that concerned, they can take it to court.” That is not the
position that we should be
in. That
highlights a gap that has emerged since the introduction of FSMA. The
Financial Ombudsman Service, which is the alternative dispute
resolution mechanism and point of contact for individual consumers
seeking to resolve a dispute that they have with a provider, has filled
a vacuum. In large group actions where there is widespread evidence of
mis-selling, whether of mortgages or of PPI, the FOS seems to be taking
on a role in resolving those complaints, which, in a way, is outside
its remit. However, if it had not filled that vacuum, I am not sure
what would have happened. There would certainly have been a pressing
need for a collective action order.
4.45
pm There
is a weakness in the regulatory structure. That issue might be
addressed when we discuss consumer redress under clause 26, but it
remains my nagging doubt that we still have not tackled it properly.
The Ministry of Justice said that we need to look at individual
sectors, and the Civil Justice Council said that we must look at the
alternative procedures. I do not think that we have properly looked at
alternative procedures that would improve the regulatory system and
ensure that consumers did not need to have recourse to law to resolve
their rights. Having made that point again, I beg to ask leave to
withdraw the amendment.
Amendment,
by leave, withdrawn.
Clause 18
ordered to stand part of the Bill.
Clauses 19
and 20 ordered to stand part of the
Bill.
Clause
21Meaning
of “financial services
claim”
Mr.
Hoban: I beg to move amendment 59, in clause
21, page 24, line 14, at end insert ‘,
and ‘(c)
is brought by or on behalf of (and is limited to) persons who are
consumers;’.
The
Chairman: With this it will be convenient to discuss
amendment 60, in clause 21, page 25, line 15, at end
add— ‘(8)
In this section “consumer” means any natural person, who
in the matters to which the claim relates, is acting for purposes which
are outside his trade, business or
profession.’.
Mr.
Hoban: Clause 21 sets out the definition of a financial
services claim in the context of who the defendant might be. It
mentions
an “Authorised
person; authorised person who is an investment firm or credit
institution; person acting as an appointed representative; payment
service provider; a person carrying on a business of a kind mentioned
in section 226A(3) of FSMA”.
I want to ensure that
the redress or collective proceedings process covers not only people
who are authorised by the FSA, but those who have undertaken consumer
credit action. We know that those who are provided with consumer credit
fall outside the remit of the FSA. However, we do not have a definition
of who brings the complaint—the claimant—in this process.
Amendment 59 would introduce a new paragraph (c), while new subsection
(8) defines a consumer.
That creates
further clarity regarding who is bringing the complaint and what the
process is. Without defining who has suffered the loss, it is difficult
to say what a complaint actually is. We need symmetry. We have
identified the defendants, but should we not identify who is in a
position to make claims? It is a relatively straightforward
amendment.
Ian
Pearson: The effect of the amendments is to exclude small
and large businesses by virtue of the definition of
“consumer” given by the hon. Member for Fareham in
amendment 60. I will explain why we believe it right to include in the
scope of class actions businesses, especially small businesses, as well
as charities, the self-employed and individuals acting in a
professional
capacity. The
definition of those whose claims can be represented is related closely
to the definition of “consumer” in the Financial Services
and Markets Act 2000. I consider it important to maintain the
relationship between those who may benefit from regulation and those
who may benefit from collective proceedings. It is advisable and
desirable to avoid a situation in which a firm and an individual are
protected by the same regulation, but the individual has access to
greater or better routes of redress. I also do not see any reason why
court proceedings brought by large businesses should not benefit from
the more effective group litigation procedures, although for small
businesses, charities and the self-employed, the scope to act in that
way is clearly highly
important. The
collective proceedings procedure does not create new liabilities or
claims; it is simply a more efficient way of dealing with a number of
similar claims. If a group
of firms or professionals have valid claims, it seems to me that they
should be able to apply for a class action if that is the most
efficient way of handling those claims. For their claim to be valid,
businesses will have to show that they have cases with generic issues
that can be dealt with on a group basis by a representative. The court
will be able to authorise the action only if that is the most
appropriate way of disposing of the issues. To my mind and the
Government’s, the same logic applies to businesses and to
individuals. Perhaps
the hon. Gentleman is concerned that the clause would allow commercial
creditors to apply for a class action against a financial services
provider. I draw the Committee’s attention to the definition in
clause 21(1) of what types of claim they might be able to
make through a class action. It is limited to cases in which they could
show that their claim was connected with carrying on a regulated
activity or dealing with the authorised person in the course of a
regulated
activity. Ultimately,
of course, it is for the court to decide the most appropriate way to
manage a large number of claims. I believe that our approach is
preferable to excluding a whole category of potential claimants, as the
hon. Gentleman’s amendment would. I hope that I have persuaded
him not to press his amendment.
Mr.
Hoban: It is an interesting interpretation of my
amendment. I would not say that it prevented a plumbing company that
took part in a regulated transaction, for example, from pursuing a
claim. I certainly expect that it would prevent a bank from suing
another bank or a group of professional investors from suing another
institution. I do not think that it would stop most businesses from
taking part in a class action.
My amendment
is targeted predominantly at consumers: ordinary people in the street
who buy financial services products. My impression was that it aims not
to enable a string of corporates to take part in actions but to help
people who might feel that they were not properly represented or could
not afford to bring an action. The Minister’s explanation seems
to have widened the scope of who could bring an action beyond what I
think most people reading the Bill would assume.
I tabled the
amendment to tease out who the Government expect to benefit from the
provisions. It seems that anyone, whether they are wholly unfamiliar
with the legal system or a large multinational, can use them. They are
presented as a measure to help consumers rather than corporates, so the
Minister’s response indicates how wide the group of claimants
can be. It is much wider than I think people assumed before he
responded. Although
I will withdraw the amendment, tabling it has clarified who the
Government expect to take part in the process. I beg to ask leave to
withdraw the
amendment. Amendment,
by leave, withdrawn.
Clause
22Regulations
about collective
proceedings
Mr.
Hoban: I beg to move amendment 61, in clause
22, page 25, line 19, leave out from ‘Authority’ to
‘are’ in line 20 and
insert ‘and the Office of Fair
Trading’.
The purpose of
the amendment is to tease out the rationale behind the inclusion of the
financial ombudsman in the list of parties in subsection (2)(a) that
are entitled to be heard on an application for a collective proceedings
order. Given that the Bill applies to transactions regulated by either
the FSA or the Office for Fair Trading, it is clear why they have the
right to be heard on an application, but the ombudsman is not a
regulator; the ombudsman is an alternative dispute resolution
body.
The
purpose of including the ombudsman is not clear. Is it now deemed to be
a quasi-regulator? I know that some people in the industry see it as
such. Is it because the ombudsman is in a position to collect data
through the number of claims that it receives? The Minister gave us
figures earlier about how many complaints it receives. Is it because
the ombudsman can identify when large numbers of claims are being made
about a particular firm, product or service? Is it there to provide
insight into the development or generation of a claim made to the
courts? It would be helpful if the Minister explained the purpose of
including the ombudsman.
Rob
Marris: The hon. Gentleman might be reading the clause
slightly differently from me. It does not give the ombudsman the right
to be heard in the claim itself; it gives the ombudsman the right to be
heard on an application for a collective proceedings order, which is
rather
different.
Mr.
Hoban: Yes, but my point remains. Why is the ombudsman
there, given that the two other bodies are regulators and the ombudsman
is a way of resolving disputes? What standing has the ombudsman been
given in the
process? 5pm
Ian
Pearson: Let me clarify the Government’s
intentions. I will say at the outset that it is always preferable to
find a regulatory solution, and the changes that we are making to the
FSA’s redress powers in clause 26 are designed to make it more
likely that a regulatory solution will happen. However, that will not
always be possible. It will be for the court to determine in the light
of evidence from the OFT, the FSA and the Financial Ombudsman Service,
as appropriate, whether collective proceedings are the most suitable
means of dealing with the case.
The amendment
invites debate about why the financial ombudsman should be included,
given its different status. Clearly, the FSA and OFT have variable
information. I note that the hon. Gentleman does not dispute that they
should be heard when the court is deciding whether such proceedings
should take
place. Admittedly,
the Financial Ombudsman Service is in a somewhat different position.
The ombudsman cannot offer a collective alternative to collective
proceedings and can only hear cases on an individual basis, and its
determinations are not automatically binding on the consumer. However,
the Financial Ombudsman Service will be able to make representations to
the court about such things as the suitability of the ombudsman to deal
with the cases. It may also tell the court about the volume of
complaints that it has received and what it plans to do with them. It
will also be important for the court to know whether the ombudsman has
resolved any cases.
Such
information should assist the court in making its decision. For
example, the court will need to decide whether the ombudsman and the
county courts would offer a better solution. The court would also need
to decide whether collective proceedings and complaints to the
ombudsman can continue in tandem. Finally, the court will need to know
whether the ombudsman is planning to dismiss the cases and whether that
is dependent on a collective proceedings order being made. It is to be
expected that in many cases the ombudsman may well be preferred over
collective proceedings, because it may be able to offer a cheap and
informal solution for all or for a significant number of the claims.
For such reasons, we believe that it is important that the voice of the
ombudsman is heard and that the information it is able to provide can
be made available to the courts. I hope that provides helpful
clarification to the hon. Member for
Fareham.
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