Compensation Bill [HL]

moved Amendment No. 41: Page 2, line 44, leave out paragraph (c) and insert— ““(c)   will protect the interests of persons using claims management services by ensuring that authorised persons comply with suitable standards, including, in particular, standards as to— (i)   competence of advisers; (ii)   capital adequacy and solvency of authorised persons; (iii)   transparency of charging; (iv)   advice on the availability of free alternative services; (v)   restriction of unsolicited methods of approach by authorised persons; (vi)   rights to withdraw without penalty in all contracts for services; and (vii)   bonds or indemnity insurance (or both).”” The noble Lord said: We are now moving to the area of what we want regulation to achieve or what we want the regulator to do. The amendment seeks to omit Clause 3(2)(c), which refers to promoting"““the interests of people using . . . services””," and to replace it with a list of requirements designed to protect the consumer. Any list should, of course, be self-explanatory and seek to address the problems which have emerged over the past five years. The list in Amendment No. 41 seeks to ensure that the nebulous ““good practice”” is more closely refined. The points are reflected in detailed provisions added to the Schedule in later amendments. The proposed amendment sets out a more robust set of criteria against which the regulator should be judged and addresses those issues which are of most concern to the public generally. To go through the list, sub-paragraph (i) refers to the ““competence of advisers””. The amendment seeks to insert a new paragraph (c), which states:"““will protect the interests of persons using claims management services by ensuring that authorised persons comply with suitable standards, including, in particular, standards as to . . . competence of advisers””." I am very concerned about the competence of some of those involved. I recall reading in the CAB evidence on the challenges facing access to injury compensation, entitled No Win, No Fee, No Chance, at page 14, that:"““A Merseyside CAB reported that their client was visited by a representative of a claims management company following an accident where she tripped over a broken paving stone. When the representative carried out a visit of the site of the accident, they told the client as the defect in the paving stone was less than one inch in size, she should say that she had tripped somewhere else, and then produced photographs for her to sign to confirm them as the actual site of the accident””." A body such as a citizens advice bureau would not quote an instance like that unless it thought that it was representative. We are concerned that there should be every possible protection of the consumer by ensuring that advisers are competent. This is in direct parallel to the role of the Financial Services Authority, which sets the standards that firms must meet and can take action against them if they fail to meet the required standards. Of course, this does not necessarily imply that the new regulator will, in some sense, provide a kite mark, especially if we succeed in ensuring that every CMC is covered by the new regulations, but it does imply that consumers will gain. The second area of concern for the protection of those using claims management services relates to,"““capital adequacy and solvency of authorised persons””." This is a very important factor given that claims management companies are handling the money of their clients and services are often paid for in advance. The client’s money has to be protected in some way, and the best way to achieve this is by ensuring that it will not be lost as a result of the firm going under, especially given the high-profile collapse of the so-called market leaders, as they were, Claims Direct and the Accident Group. I hope that the Minister agrees with me about the importance of capital adequacy. The third area is ““transparency of charging””. This emerges time and again as the major issue with claims management companies. Even the more respectable CMCs could improve that aspect of their activities. It should be reasonably straightforward for the new regulator to set certain standards in this regard. Again, the FSA may have lessons for us, for example in its emerging TCF—treating customers fairly—policy. I will want to return to transparency of charging a little later, as I think that it is a very shadowy area, where little reaches the surface. I would like to see much greater transparency, so we may seek to persuade the Minister of other ways in which to achieve it. The fourth area is another major ongoing concern, prompted especially by the emergence of claims farmers in the field of endowment mortgage mis-selling: the proliferation of advertisements offering a no win, no fee service, all of which blatantly fail to mention the ready availability of a free service to those who feel that they have a legitimate claim to make. That is why sub-paragraph (iv) instances,"““advice on the availability of free alternative services””." The fifth area is,"““restriction of unsolicited methods of approach by authorised persons””." As we all know, cold calling is one of the evils of our age, especially for people in vulnerable groups. Anything that we can do to curb it will be welcomed by the vast majority of people. The sixth point relates to,"““rights to withdraw without penalty in all contracts for services””." This refers to get-out clauses, which are perhaps the greatest consumer protection of all, especially in areas where small print abounds. It is often the case at present that claimants enter into contracts to which they then discover they are bound and unable to retract without penalty, as there is no cooling-off period. The seventh, final point concerns,"““bonds or indemnity insurance (or both)””," and would bring the sector more into line with other sectors, notably the so-called professions and bodies such as travel agents, where the financial interests of customers are protected by a bond system. That would again act to increase consumer confidence in the industry. There is also tremendous reassurance to be gained from the knowledge that someone has professional indemnity insurance. If we insist on claims management companies having that, the effects could be far-reaching. Of course, unless they clean up their act, many CMCs will struggle to get this kind of cover. Even when they do, they will find the premiums pretty high. Of course, the provision will give them another incentive to operate on a more transparent and responsible basis. One only has to look at a government-sponsored website, ““Business Link””, to see that government advice is that people who are in the business of selling their knowledge or skills should take out professional indemnity insurance. The website also points out that, if you are a lawyer, an accountant or financial adviser, you must have professional indemnity insurance. That is a good provision, which I am arguing the Minister should extend to cover claims management companies. There is a problem, in that some may not be able to get cover. I will deal with that by instancing the Law Society rules. The Law Society states quite clearly at paragraph 2.2 of its introductory comments on its rules:"““Evidence of professional indemnity insurance that complies with the Minimum Terms and Conditions is a requirement for obtaining a practising certificate””." It then moves on to deal with the problem that I have just mentioned. The Law Society recognises that some firms may not be able to secure terms from qualifying insurers and may not be able reasonably to afford the terms which are available to them. That might be as a result of a poor claims record, a major claim bill outstanding but not yet decided or other risk factors. Under paragraph 4 of the introductory comments to the Solicitors’ Indemnity Insurance Rules 2005 is something called the assigned risks pool, which. I give the Minister as an example of what could well happen here if a similar situation were to occur:"““It is not the intention of the Law Society for such firms to be left without cover, at least in the short term. To this end, an Assigned Risks Pool . . . has been established to accept those risks which fall into this category””." So, for whatever regulation system is in force, it is perfectly possible for there to be a requirement that there should be professional indemnity insurance, and I commend that to the Minister. I hope that I have been able to explain Amendment No. 41 without just seeking to lay down some minimum standards with which authorised persons should comply as we move into the new regime to be established under the Bill. I beg to move.