Clause 18

Financial Services Bill – in a Public Bill Committee on 12th January 2010.

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Collective proceedings orders

Amendment proposed (this day): 58, in clause 18, page 23, line 9, at end add—

‘(7) Proceedings may be authorised under subsection (1) only if the representative—

(a) is authorised to act as representative on an ad hoc basis under the civil Procedure rules, or

(b) is authorised to act as representative and on such terms as specified by order of the Lord Chancellor, in accordance with criteria to be published by the Lord Chancellor for the purposes of this section.

(8) An application by a body to be authorised under subsection (7) is to be made in a form approved by the Lord Chancellor for the purpose.

(9) Before issuing criteria or authorising a body under subsection (7)(b) the Lord Chancellor shall consult the Lord Chief Justice.

(10) The Lord Chief Justice may nominate a judicial office holder to carry out the functions under subsection (8).

(11) In this section—

“judicial office holder” has the same meaning as in section 109(4) of the Constitutional Reform Act 2005;

“court” means in England and Wales, the High Court, or, in Scotland, the Court of Session.’.— (Mr. Hoban.)

Question again proposed, That the amendment be made.

Photo of Joe Benton Joe Benton Labour, Bootle

I remind the Committee that with this we are taking clauses 18, 19 and 20 stand part.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

As I was saying before the Committee rose, existing provisions for collective litigation are rarely used. That is because they are open only to a person who has a claim themselves, and they can represent others only where their claims are the same. Claims that differ, even in minor respects, cannot be represented. Consumers must therefore make individual claims and firms may have to defend thousands of similar actions. For example, complaints about bank overdraft charges generated some 47,000 court cases. It is expensive, time-consuming and inefficient, and there is a risk that the courts will make different and conflicting rulings. As the hon. Member for Fareham acknowledged, the ombudsman service is not a suitable vehicle for dealing with mass claims. For example, the ombudsman cannot make judgments that are binding on both sides, and cannot deal with complex points of law. The ombudsman is not a court, nor should we attempt to convert the service into a court.

Clause 18 provides for the first time a court procedure that will enable financial services claims to be resolved for a group of persons without the need for group members to bring their own claims. A representative may apply to court to bring the collective claim on behalf of the group. The court will then consider whether to authorise collective proceedings.

Before dealing with the amendment, I will say something in relation to the points that the hon. Member for Fareham raised this morning. The Government do not support the introduction of a generic right of collective action. We believe that such rights should be considered for specific sectors. They should be introduced only where needed. It should be a last resort after regulatory options have been considered. That was set out in the Government’s response to the Civil Justice Council report, “Improving Access to Justice through Collective Actions”, which was published in July 2009. That is the approach we are taking here. Financial services have a history of mis-selling and other scandals that throw up mass claims. When regulatory action is not appropriate—because a legal point needs to be settled, for example—collective proceedings will provide an efficient way to deal with claims that would otherwise have to be considered individually.

Photo of Colin Breed Colin Breed Shadow Treasury Minister

I agree entirely with that. However, as the Minister will be aware, the problem—if that is what it is—with bank charges was that a number of people had their claims dealt with and some got their money back and some did not. Then there was the collective action and a decision was made, but that did not include all the people who settled before the collective action. How do the Government propose to deal with that situation so that a substantial number of cases have not already been dealt with before collective action commences?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

The hon. Gentleman raises a good point. We will have to see how it works in practice. Perhaps in some cases there will be individual actions and then collective action will be authorised by the court. It will be for the courts to judge when a collective action is right under the powers that we are providing.

Any case that involves generic issues that affect a number of consumers may be appropriate for collective proceedings. There have been instances of widespread mis-selling, for example, of endowment mortgages and payment protection insurance. As the hon. Gentleman has mentioned, consumers have had to pursue individual complaints. They might have benefited if they had had the ability to launch a collective action.

In the recent bank charges case to which the hon. Gentleman referred, the Supreme Court held that overdraft and similar charges could not be assessed for fairness under the Unfair Terms in Consumer Contracts Regulation on the basis of the adequacy of the price paid as against the service provided. In that case, the possibility of collective proceedings would not have made a substantive difference to the position of consumers.

The two measures that we propose complement each other, and are for use in different circumstances. The FSA will have the option of using a redress scheme when, for example, the law is clear. A large number of consumers will benefit without having to go to court,  which might also be most cost-effective for the industry. Alternatively, consumers will be able to proceed collectively where the FSA chooses not to take action. Typically, the FSA will not want to act where the law is unclear. There may be other reasons why it will not want to act. It is important to stress the complementary nature of what we are proposing.

There is an element of choice for consumers and their representatives in determining the best way forward. The representative is free to apply for authorisation of the proceedings.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

My concern is that, as the Minister says, the FSA might not wish to pursue an issue where the law is unclear, and we will be dependent on consumers taking their own legal action to enforce their rights. If the FSA’s rules are unclear, would one not expect it to sort that out and ensure that consumers do not need to take action through the courts? Does the Minister draw a distinction between the FSA’s rules and the broader contractual law?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

It is the hon. Gentleman who draws a distinction. I hope that it is never the case that the law is not clear. If the FSA’s rules are not clear, the direct answer is that I would expect it to make them clear. In general, as the hon. Gentleman will be aware, the court would be reluctant to authorise collective proceedings if litigation would be less efficient than regulatory action. He made a number of points about getting regulatory action right in the first instance.

It is intended that the FSA, the FOS and the OFT will have a right to be heard by the court to explain the possible alternatives. The court will have an opportunity to assess what is likely to be the best course of action. It will be able to require the representative to explain what it has done to work with the regulators, and whether it has pursued alternative dispute resolution.

Regardless of how the FSA performs its functions, consumers might need to bring legal proceedings in a number of circumstances, and it is right that they have that opportunity. I do not accept that the provisions constitute any recognition that the FSA is not doing its job properly. Consumers who enter into legal relations with financial services providers may sometimes need—and want—to bring legal proceedings. The provisions for collective proceedings enable claims to be combined where that is appropriate.

We propose that a representative will be able to act on behalf of a group of consumers where claims contain the same, similar or a related issue of fact or law. As part of that, we do not intend to make changes that move us towards a US-style system. Some have portrayed this provision as doing that. We do not want to see the development of a US-style litigation culture, and there are a number of major differences between the US and UK legal systems which lead me to conclude that that is not likely to happen. In the UK, it is not the case that parties normally bear their own costs. The “loser pays” principle applies in the UK, which is an effective deterrent to spurious claims. There is no provision for US-style punitive awards or treble damages, and the legal system is not used as a sort of private regulator to allow individuals to hold companies to account. There is no burden of extensive up-front disclosure, no provision for lawyers to take a share of the damages, and no jury trials in which juries can make awards that are exceptional.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

The Minister says that there is no provision for lawyers to take a share of the damages, but what about no-win, no-fee cases?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

The hon. Gentleman is right to point to that. What I am trying to explain is that the system here is very different from the one in the United States. We are certainly not signalling in the collective proceedings proposals that we should move in that direction, but we believe that the proposals will be a useful addition and will give consumers more power.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

In non-contentious cases, it is true that lawyers can take a share of the damages, but the cases that we are discussing will all be contentious. In contentious cases, if the successful party is acting under a no-win, no-fee agreement, the lawyer charges what is called a success fee. This Government introduced recoverable success fees so that additional costs are paid by the losing party and do not come out of the damages.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I welcome my hon. Friend’s contribution. He clearly knows a great deal about legal proceedings. I am not legally qualified and am happy to rely on his words of wisdom.

I want to make it clear that significant safeguards are built into our proposals, and that nuisance or speculative claims will not be acceptable. The safeguards are, first, that the clauses are designed to stand alongside clause 26, which confers a new power on the FSA to provide for consumer redress schemes so that only cases that cannot be settled by the regulator will proceed to the courts. Secondly, a group action is a serious matter, and the “loser pays” principle applies. A representative will need to be able to attract adequate funding. I therefore expect only the strongest cases to be taken forward. Thirdly, there must be strict threshold criteria for authorising a class action. They will be set out in court rules, as I have said. However, as I mentioned, I have also asked for a backstop power to enable the Treasury to set out additional criteria that can be tailored to financial services.

I can see the case for restricting the types of body that can bring claims. We will consult on the nature of any restrictions and, for example, the position of claims management companies and other professional representatives. I do not want to pre-empt the outcome of that consultation, but I am prepared to consider restricting representatives to public interest bodies, consumer groups and those who will not earn a fee for their services.

The first part of amendment 58 calls for the eligibility criteria for authorising a representative to be spelled out in court rules. The Government believe that that is unnecessary. Clause 24(2) states that the court rules will contain the requirements applicable to the representative. I understand that the rules are already being drafted by the civil procedure rules sub-committee in England and Wales, and it is expected that the rules committee will consult on them later this year.

The second part of the amendment creates a designation procedure so that a representative can apply to be authorised before applying to bring an action. I draw the Committee’s attention to the fact that the court  itself will be able to approve a representative in accordance with the rules, so an additional designation procedure seems unduly bureaucratic. If collective proceedings are to work properly, the court will always need to appoint an appropriate representative to represent the group. The suitability of a representative will vary from case to case, so a standardised form of prior approval may be counter-productive.

I agree with the hon. Member for Fareham that it is vital that only suitably qualified persons of appropriate standing should be allowed to bring a class action, and I believe that that should be set out principally in court rules. Subsection (2) of clause 24 gives detailed examples of the kinds of rule that can be made—notably to govern the procedure and content of an application to bring a group action and the criteria for the court to apply in deciding whether to grant it.

I expect the minimum criteria to be either that a representative has a claim or that they are considered by the court to be an appropriate person to act as a representative. The representative will need to satisfy the court that they are suitably qualified. That means that they will probably need to have a litigation plan, which is to say that they will need to have a plan for effectively managing the case and communicating with claimants. We expect that there will need to be strong governance and consultation arrangements that match the size and nature of the class of complainants. Those are the sort of issues that are currently being considered by the Rules Committee and will be consulted on in due course.

In addition, as I hope to set out in more detail when we debate clause 22, the Treasury will have powers to set more detailed eligibility criteria. I expect them to limit eligibility only to appropriate individuals or bodies that have a direct claim of their own, and to bodies of a prescribed type that do not themselves have a direct claim. The Government intend to consult on the nature of any restrictions and, for example, the position of claims management companies and other professional representatives.

I wish to move on and refer briefly to the other clauses that have been grouped with clause 18. The Committee will be aware that the clause, together with clauses 19 to 25, introduces a new form of group action into United Kingdom law. We believe that it is an efficient way to deal with mass claims that currently have to be dealt with individually by the Financial Ombudsman Service and the courts. Many good claims are currently not being dealt with at all because consumers regard complaints and litigation as too difficult. There is a real risk of a multitude of cases being pursued individually, which is why we are dealing with matters under legislation.

Clause 19 creates two bases for collective proceedings, a matter raised by the hon. Member for Fareham. After making a collective proceedings order, the court must decide whether proceedings should be on an opt-in basis or an opt-out basis. In an opt-in case, the claimants who want to take part must identify themselves and agree to be represented. In an opt-out case, all those  with an eligible claim will be included automatically without the need to identify themselves. They will be able to opt out of the group within a certain period.

It is important to recognise that financial services cases can differ enormously, for example in their size and complexity and in the legal basis for the claim. That is why it is essential that the court has wide case management powers to deal with claims in a way that suits the particular circumstances of the claims. That includes allowing the court to determine whether collective proceedings should take place and, if so, on what basis—whether it is an opt-in case or an opt-out case. That is why clause 19 makes provision for both opt-in and opt-out proceedings and gives the court the responsibility of deciding the most appropriate, which is the right way to operate.

Clause 20 is more technical. It provides that, when giving a judgment or making an order in collective proceedings, the court must direct whether or not to bind some or all represented persons. For the proposed collective proceedings procedure to work efficiently and fairly, it is necessary that judgments or orders can bind group members. Otherwise, group members will be able to bring individual proceedings even though the judgment in the collective proceedings has gone against them.

If someone has opted in to collective proceedings or has failed to opt out of the proceedings, it is only right that they should be prepared to accept the consequences of the actions of the representative in the proceedings. If collective proceedings are to be an effective tool for resolving cases—as we want them to be—involving large numbers of claims, it is essential for the court to decide that judgments or orders are binding on some or all represented persons or representatives, as appropriate.

Clauses 18, 19 and 20, together with the other clauses that we shall be debating soon, introduce a new form of group action into UK law. It is an efficient way of dealing with mass claims that currently have to be dealt with individually. It will help to improve access to justice; many good claims are currently not dealt with at all.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury) 4:15 pm, 12th January 2010

I start with the general argument that the Minister made about why collective proceedings orders are necessary. The starting point was the Ministry of Justice response to the Civil Justice Council report about collective actions. The Ministry’s response was that such actions should be used only in particular sectors. I can see a clear argument why the financial services sector, given the number of mis-selling claims in recent years, is appropriate, with a group of cases with similar threads running through them.

The Minister said that, in reality, such actions should be used only when the law was unclear. I thought that an interesting argument, because the law may be unclear in many areas of consumer activity. To pick on that sector spoiled his argument, which supported a more generic right rather than one tailored to the sector, particularly given the degree of regulation involved. I am not sure that he made the most robust case for why the sector should be the one highlighted as the guinea pig.

The same theme came out in the Ministry report. The legislation exists, but we are some way off the detailed rules that will provide the safeguards for which industry is looking. The Minister said that work on them would  conclude towards the end of the year, when they will be consulted upon. Later clauses, such as clause 22, give the Treasury regulation-making powers, but we have not seen the draft regulations. The Government have used the Bill—as the Treasury so often does—as enabling legislation, leaving everyone to trust in secondary legislation that will be brought forward. That position is not satisfactory. The Minister has not given the warmest of reassurances to those who pay attention to our proceedings.

The Minister said that where the law is clear, the consumer redress provisions should be used. I shall talk about the subject when we come to clause 26, but that is not the impression that the general counsel for the Financial Services Authority gave in his evidence to us before Christmas. He indicated that the power could be used in cases in which the law was unclear. There needs to be a safeguard to reflect that, but I shall deal with that point at another time.

The Minister is setting out in the clause, and in other clauses in the group dealing with collective proceedings orders, a framework that will be filled in at a later stage, through either secondary legislation or court rules. I suspect we shall hear that refrain a lot as I talk through the amendments I have tabled. I hope he will go further than saying simply, “It has been consulted upon”, because there is a lot of concern about the measures, arising from the lack of detailed information about the rules.

The hon. Member for Wolverhampton, South-West suggested that he was surprised I was giving some responsibility to a politician—in this case, the Lord Chancellor. My amendment 58 follows the proposals set out by the Civil Justice Council, which produced a draft Bill, and this is one of its clauses. That point was reached by a group of lawyers—some judges and some practising barristers and solicitors—who had thought through the matter clearly. I assumed that the Government would be rather keener than the Minister has suggested to adopt something of the nature that the group had put forward.

Before I make more substantive comments on clause 19, I take note of the Minister’s comments about the implications of clause 20. One of the challenges in such cases is to create certainty of treatment. That issue was in the minds of many people when the bank charges case was going through court. How do we ensure certainty for both claimants and defendants? It is right that measures are in place to fix that, so people know exactly what their position is.

As the Minister said, clause 19 gives some flexibility in choosing between opt-in and opt-out. Arguments have been made in favour of both a pure opt-in and a pure opt-out system; there is no universal consensus. Under an opt-in scheme, consumers would have to identify themselves to a representative bringing a claim; under opt-out, they would be considered automatically unless they said otherwise. The court has responsibility for directing whether proceedings will be brought on an opt-in or opt-out basis.

Such flexibility is reflected in the Civil Justice Council’s conclusions where the Government choose to follow its thoughts. Lord Woolf wrote in 1996:

“The court should have power to progress” a multi-party situation

“on an ‘opt-out’ or ‘opt-in’ basis, whichever contributes best to the effective and efficient disposition of the case.”

That is an important point.

The Civil Justice Council wrote in its report that

“a large number of small claims arising out of a common contractual dispute, holiday claims etc., may be better suited to resolution via an opt-out collective action. If however a consumer claim appears to be inherently suited to individualised litigation that is case managed as a collective action of unitary actions (because, say, the size of the class is very small, and each class member has indicated a wish to sue individually and would probably opt-out to do so, were the proceedings to be brought under an opt-out model), then the certification court could appropriately order that the action be certified as a GLO”, or group litigation order.

In essence, the Civil Justice Council is arguing that if the loss is likely to be the same for all claimants, opt-out is the most appropriate mechanism to deliver justice for those claimants, but if the loss, although subject to common factors, is likely to be highly differentiated among claimants, an opt-in arrangement is more appropriate.

We have heard a number of examples of cases in which that argument might be applied. Equitable Life policyholders have been subject to the same regulatory administrative failures, but the circumstances and nature of each individual’s losses are different. Anyone who reads Sir John Chadwick’s interim report can see how the different groups might be affected. An opt-out case brought for Equitable Life might not result in an efficient and effective disposition of the case, given the varied interests involved. However, I suspect that the mis-selling of payment protection insurance products would lend itself well to an opt-out system due to the nature of the products and the scale of the loss.

Photo of Colin Breed Colin Breed Shadow Treasury Minister

I am listening carefully, because that is an interesting aspect that I had not considered. Does the hon. Gentleman consider that there might be multiple collective actions representing different complaints or series of complaints against the same company? In other words, different class actions could go on at the same time in the context of the same complaint, because different complainants would be treated differently.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury) 4:30 pm, 12th January 2010

Yes, I think that that is right. It is always dangerous to use examples, as they never quite fit the precise circumstances, but in the case of Equitable Life, there are different groups of policyholders. Some people were late joiners. Their complaint against Equitable Life or the regulator would be different from that of the trapped annuitants, who could not leave Equitable Life voluntarily.

In that case, a collective action covering all Equitable Life policyholders would not seem to be the right process, even though they were all subject to problems with Equitable Life and regulatory failure. We can see that an event might trigger not one case but a multitude of cases, whether that is because the policyholders’ circumstances are different, because they are affected in particular ways, or because the problem has a differential impact on different groups. Therefore, a series of smaller collective actions might be a better way to proceed, rather than a single action that covered all policyholders. That is one of the issues on which we need flexibility on whether to opt in or out. Recognising that need for flexibility, the Civil Justice Council concluded that

“This approach is one that does not therefore recommend the introduction of any form of presumption as to whether a collective action should operate on an opt-in or opt-out basis. It is an approach which places the responsibility for designation with the court at the certification stage.”

That is, we should leave it to the court to decide whether that is appropriate.

However, the prospect of opt-out triggered concerns among lawyers and others, who felt that it could lead to US-style litigation. Slaughter and May said:

“This development heralds the arrival on UK shores of a procedure for consumer litigation, which is in some respects similar, at least in its ‘opt-out’ form, to the US ‘class action’ procedure. The result would likely be that large numbers of relatively small claims which individual consumers might currently be unlikely to pursue on an individual basis could be aggregated and brought through collective proceedings.”

That is the concern that some have about the opt-out process. However, it is not a universal concern, because the four consumer groups said in their submission:

“We do not believe industry concerns that an opt-out process will lead to the development of a US-style class action culture are justified. Opt-out is also a feature of collective redress systems in Portugal and Scandinavia but these countries have not experienced the same problems as the US.”

They went on to echo a point that the Minister has made:

“It is the particular features of the American legal system, rather than the nature of the opt-out system per se, that have led to the class action culture. In contrast to the US, our legal system is characterised by close judicial supervision and the Bill rightly builds on this tradition by ensuring judicial checks and balances.”

Industry’s concern is that if the checks and balances are meant to ensure that the opt-out system does not become a US class action process, it would like to see what those checks and balances are more clearly.

On the one hand, consumer groups say that opt-out is necessary and not something to be feared, while on the other hand, industry claims the opposite. So what is the case for a purely opt-out situation? Those who argue in favour of the opt-out must make the case for moving away from the flexibility.

One criticism of restricting the measures to opt-in is that it does not move us very far from the existing set-up. There is already provision to bring a group litigation order; to the minds of some, that is already an opt-in procedure. The Courts Service says:

“A group litigation order can be made in any claim where there are multiple parties or claimants to the same cause of action. The order will provide for the case management of claims which give rise to common or related issues of fact or law.”

Indeed, it was a group litigation order that Which? used to initiate proceedings against JJB for the price-fixing of football shirts. That gives rise to a further possible argument: in such cases, the amount lost per customer is so minimal as to discourage any complainant from actively becoming involved, and that allows the company to escape justice. The loss per person might be relatively small, although a large number of people are involved. In situations where it is not worth pursuing the case, organisations such as JJB would escape justice. Provided that the authorised person is properly approved, is there any reason why they could not draft more complainants in on an opt-out basis?

Similarly, there are reasons other than the monetary amount that discourage people from involving themselves on an opt-in basis, such as fear of the legal system or simple human inertia. The Association of British Insurers said:

“if these reasons act as a disincentive for a consumer to opt-in to joining a CCR action, why should the same consumer with the same social and psychological issues be forced by default to participate in litigation on an opt-out basis?”

For the ABI, clearly one of the arguments on opting in is that it makes sure that everyone possible is involved in the measure. One of the criticisms of opting in is that it requires people to overcome their inertia and reluctance to engage. If people are automatically assumed to be part of a class action, will they really volunteer to opt out? It is almost the reverse of the nudge argument.

We want the default position to be right for the person, so that it gets them to do what is instinctively right. I sense that one of the reasons for an opt-out process is that it automatically assumes that the individual would like to be part of litigation and to pursue their case, and that they should therefore be in a position to pursue that litigation, even if they are not actively engaged. That assumes that the right safeguards are in place in cases where opt-out is appropriate. It is a strong argument for universal application of an opt-out. In the evidence sessions, Jane Vass from Age Concern and Help the Aged said:

“We particularly welcome the proposal for collective proceedings with an opt-out procedure, which will redress a great imbalance for older people, who often are not in a position to make a complaint themselves if they are socially isolated, if they do not have support, if they are immobile, or if they just do not have access to the available forms of information.”——[Official Report, Financial Services Public Bill Committee, 8 December 2009; c. 50, Q140.]

The ABI suggested that an opt-out system would be a dramatic shift in the process of law in the United Kingdom that raised serious constitutional and human rights issues. In the first instance, it felt that the impact of opt-out systems on the due process rules, as enshrined in the European convention on human rights, was unclear. It felt that individuals should not be made to be claimants without their knowledge or explicit consent. It also said that defendants have a fundamental right to know who is accusing them of unlawful conduct, so the creation of an opt-out consumer collective redress is likely to give rise to fundamental reconsiderations of the philosophical basis for European legal traditions. I suspect that that fundamental reconsideration is outside the scope of the Committee, but the ABI’s response demonstrates our concern about making significant moves to change the legal framework for bringing such actions in a narrow sector, when there are wider considerations to be thought about. It is also a reminder of why we are worried about the lack of evidence on what safeguards will be in place.

If there is to be such a fundamental change, we need to move with caution and ensure that there are adequate safeguards. If the fears about US-style litigious culture are well founded, we must make sure that proper safeguards are in place. The European Justice Forum, which I spoke about this morning, said in its representation on the subject:

“Class actions are an exceptionally powerful and potentially dangerous instrument, as evidenced by the experience of other countries. If they are to be used at all they must be contained within carefully designed provisions that will avoid abusive claims and ill founded litigation.”

My conclusion is that while there are some strong arguments for a pure opt-out, there are valid concerns about why it would be inappropriate to allow only opt-outs, given our legal system and the safeguards. The Civil Justice Council has got it about right: it says that there should some flexibility, and that that flexibility should be determined by the court, based on the circumstances of each individual case.

By rehearsing the arguments on whether there should be an opt-in or an opt-out system, we have demonstrated some of the tensions underlying the introduction of such actions, and reinforced the need for further safeguards. That was the point of amendment 58.

The Minister says that the issue will be part of the consultation on the court rules, and I welcome that. However, there is a lack of transparency about the process at the moment, although the Minister has shed some light on it. It would be helpful if more information were shared with the Committee on how the legislation will go forward and how the details will be filled in. That would be helpful, and might provide reassurance to those who take an interest in such matters.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

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.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

Where the law is clear, should we not expect the regulator to take action and not require consumers to go through the court process?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

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.

Mr. Hobanrose—

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I think that the hon. Gentleman was about to withdraw his amendment.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

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.

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.