Clause 60 - Funding of ombudsman scheme

Consumer Credit Bill – in a Public Bill Committee at 3:15 pm on 27 January 2005.

Alert me about debates like this

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury) 3:15, 27 January 2005

I beg to move amendment No. 44, in clause 60, page 49, line 41, at end add—

'(16) No licensee shall have to pay to the Ombudsman or its scheme operator any money until such time as the case is decided against him.'.

Perhaps I could provide a little background on how I see the situation, not just on the funding of the ombudsman scheme that clause 60 deals with, but with the general principle. I can illustrate my point with an example. Some time ago, one of my constituents who was an independent financial adviser was reported by a client to the authorities. He was charged £500 for the   pleasure of having his case heard. The complaint against him was dismissed, and it might be reasonably assumed that he could claim back his £500. I am afraid that that was not the case. That seems very wrong for two reasons. First, why should he pay anything when the case was dismissed? That seems to fly in the face of justice; we do not normally fine people who have not committed an offence. Secondly, it gives rise to the possibility that vexatious litigants keep reporting someone whom they do not like until that person is bankrupt.

My amendment states:

''No licensee shall have to pay to the Ombudsman or its scheme operator any money until such time as the case is decided against him.''

I do not see what objection there could be to such an amendment. I know that there is a precedent to the opposite effect; and I know that it may affect other legislation. However, I do not see how it can be fair that people should have to pay what are, in effect, fines when they have done nothing wrong. I look forward to hearing what the Minister has to say.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

It will come as no surprise to the hon. Gentleman that the Government will resist the amendment. It is a principle of the ADR scheme that it is self-funding, and amendment No. 44 could make that impossible. It is also a fundamental principle of the ADR that it should be free to the consumer. That ensures that all consumers have access to redress mechanisms, not just those who can pay for them. The ADR funding arrangements should recognise the unequal bargaining positions of firms and consumers. I seek to correct that imbalance so that cost is not a barrier for consumers when seeking redress.

Under clause 60, the ADR scheme would be funded by a modest annual levy, and a case fee will be payable by those businesses against which complaints are considered. There will be a levy and a case fee. The majority of firms will never pay the case fee. Their cases do not get as far as requiring ADR—

Sitting suspended for a Division in the House.

On resuming—

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs) 3:44, 27 January 2005

To recap, I had said that the ADR scheme would be funded by a modest annual levy with the case fee payable by those businesses whose complaints are considered at ADR. I also said that the majority of firms will never pay the case fee if their cases do not get as far as requiring ADR. Firms that come before the FOS currently get the first two cases in a year free anyway. Therefore, ADR will be much cheaper for firms than going to court.

I am not clear how the proposal to fund the arrangements would work in the scenario offered by the hon. Member for Tewkesbury (Mr. Robertson). Case fees for businesses that lose cases will be likely to increase dramatically. The FOS takes all steps possible to ensure that firms do not pay unnecessarily for ADR. When the FOS receives a complaint, it attempts to   resolve it informally before the case is opened. If it is successful, no case fee is payable. The FOS will consider a complaint only when a firm's internal complaints handling procedures have been exhausted; the FOS also has a screening system to filter out complaints that are obviously frivolous or vexatious. The outcome of the ADR is rarely as straightforward as simply upholding or dismissing a complaint; and the solution given by the FOS is often somewhere between a win or a lose for the consumer or the lender. As such it is not usually obvious whether a firm should pay the case fee or not.

It is vital that the FOS be independent of both consumer and firm, and it must be seen to be independent. A case fee determined by the success of a complaint would give the FOS a financial stake in its own determination, and that would undermine industry and consumer confidence in the ADR scheme. Although the Bill gives the lender many opportunities to avoid going as far as the ADR, it also ensures that the FOS remains self-funding. If the case fees are too small, firms may be put out of business, and we do not want that.

I hope that with that explanation the hon. Member for Tewkesbury will withdraw his amendment. If he does not, I shall have to ask the Committee to vote against him.

Photo of Laurence Robertson Laurence Robertson Shadow Minister (Treasury)

As my hon. Friend the Member for North-East Bedfordshire (Alistair Burt) has said, the Minister has a reputation on the football field for letting nothing past him. However, that does not mean that the Opposition stops trying. In spite of the Minister's detailed response I am not satisfied that these arrangements are in keeping with the spirit of natural justice. At one point, the Minister said that if firms that were cleared of an accusation did not pay, those that had cases proved against them would have to pay more. Well, what is wrong with that? That is in keeping with the spirit of natural justice.

I accept that there may have to be an annual fee so that the body can operate. I do not dispute that; neither does my amendment. However, it is not right that a firm should have to pay a fee when the case against it is not proven and, indeed, is thrown out. That is simply not right. Therefore on this rare occasion the Minister has failed to persuade me that we should let this one go. As on the football field we shall have to try to slip this one past him. I realise that he has the officials on his side just as he has on the football field but I do want to press the matter to a Division.

Question put, That the amendment be made:—

The Committee divided: Ayes 5, Noes 7.

Division number 4 Nimrod Review — Statement — Clause 60 - Funding of ombudsman scheme

Aye: 5 MPs

No: 7 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

Clause 60 ordered to stand part of the Bill.

Clause 61 ordered to stand part of the Bill.