PPI claims: interim restriction on charges before transfer of regulation to FCA

Financial Guidance and Claims Bill [Lords] – in a Public Bill Committee at 10:00 am on 6th February 2018.

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Photo of Jack Dromey Jack Dromey Shadow Minister (Work and Pensions) (Pensions) 10:00 am, 6th February 2018

I beg to move amendment 47, in clause 27, page 22, line 30, leave out subsections (1) to (4) and insert—

“(1) A regulated person—

(a) must not charge a claimant for regulated claims management services provided in connection with the claimant’s PPI claim, unless those charges are made in accordance with section 26(4); and

(b) must not enter into an agreement that provides for the payment by a claimant, for regulated claims management services provided in connection with the claimant’s PPI claim, of charges which would breach, or are capable of breaching, the prohibition in paragraph (a).

(2) All charges incurred by a regulated person in the course of providing regulated claims management services in connection with a claimant’s PPI claim must be paid by the person against whom the claimant’s successful PPI claim was made.

(3) A regulated person—

(a) must not charge a person for regulated claims management services provided in connection with a claimant’s PPI claim, an amount which exceeds the fee cap for the claim; and

(b) must not enter into an agreement that provides for the payment by a person, for regulated claims management services provided in connection with the claimant’s PPI claim, of charges which would breach, or are capable of breaching, the prohibition in paragraph (a).

(4) A breach of subsection (1) is not actionable as a breach of statutory duty; but

(a) any payment made by a claimant in breach of subsection (1) is recoverable by the claimant; and

(b) any agreement entered into in breach of subsection (1)(b) is not enforceable to the extent it provides for a payment that breaches or is capable of breaching the prohibition in subsection (1)(a).

(4A) A breach of subsection (3) is not actionable as a breach of statutory duty; but

(a) any payment made by the person against whom the claimant’s successful PPI claim was made, in excess of the fee cap for a PPI claim is recoverable by the person; and

(b) any agreement entered into in breach of subsection (3)(b) is not enforceable to the extent it provides for a payment that breaches or is capable of breaching the prohibition in subsection (3)(a).

(4B) In subsections (4) and (4A) “payment” means a payment of charges for regulated claims services provided in connection with the PPI claim.

(4C) A relevant regulator—

(a) must ensure that it has appropriate arrangements for monitoring and enforcing compliance with subsections (1) and (3) as they apply to the regulated persons for whom it is the relevant regulator;

(b) may make rules for the purpose of doing so (which may include provision applying, in relation to breaches of subsections (1) and (3), functions the relevant regulator has in relation to breaches of another restriction.)”.

This amendment and Amendment 48 would mean that firms would be required to pay CMC costs for PPI claims where the firm is found to be at fault and the consumer has used a CMC rather than claim direct. This would only apply for the interim period until the new FCA regulations come into force, or until August 2019 which is the deadline for making PPI claims, whichever is sooner.

With this it will be convenient to discuss amendment 48, in clause 28, page 24, line 34, leave out subsections (2) to (4) and insert—

“(2) The rule is that an authorised person—

(a) must not charge a claimant, for a service which is a regulated claims management activity provided in connection with the claimant’s PPI claim, unless those charges are made in accordance with section 26(4); and

(b) must not enter into an agreement that provides for the payment by a claimant, for a service which is a regulated claims management activity provided in connection with the claimant’s PPI claim, of charges which would breach, or are capable of breaching, the prohibition in paragraph (a).

(3) All charges incurred by an authorised person in the course of providing regulated claims management activity in connection with a claimant’s PPI claim must be paid by the person against whom that claimant’s successful PPI claim was made.

(4) An authorised person—

(a) must not charge a person, for a service which is a regulated claims management activity provided in connection with the claimant’s PPI claim, an amount which exceeds the fee cap for the claim; and

(b) must not enter into an agreement that provides for the payment by a person, for a service which is a regulated claims management activity provided in connection with the claimant’s PPI claim, of charges which would breach, or are capable of breaching, the prohibition in paragraph (a).

(4A) A breach of subsection (2) is not actionable as a breach of statutory duty (despite section 138D(2) of the Financial Services and Markets Act 2000) but—

(a) any payment made by a claimant in breach of subsection (2) is recoverable by the claimant; and

(b) any agreement entered into in breach of subsection (2)(b) is not enforceable to the extent it provides for a payment that breaches or is capable of breaching the prohibition in subsection (2)(a).

(4B) A breach of subsection (4) is not actionable as a breach of statutory duty (despite section 138D(2) of the Financial Services and Markets Act 2000) but—

(a) any payment made by a person in excess of the fee cap for a PPI claim is recoverable by the person; and

(b) any agreement entered into in breach of subsection (4)(b) is not enforceable to the extent it provides for a payment that breaches or is capable of breaching the prohibition in subsection (4)(a).

(4C) In subsections (4A) and (4B) “payment” means a payment of charges for regulated claims services provided in connection with the PPI claim.”

This amendment and Amendment 47 would mean that firms would be required to pay CMC costs for PPI claims where the firm is found to be at fault and the consumer has used a CMC rather than claim direct. This would only apply for the interim period until the new FCA regulations come into force, or until August 2019 which is the deadline for making PPI claims, whichever is sooner.

Photo of Jack Dromey Jack Dromey Shadow Minister (Work and Pensions) (Pensions)

The amendment would allow consumers to keep 100% of the PPI compensation. The Government introduced an interim cap on the fees that claims management companies could charge consumers in relation to payment protection insurance claims. That was a welcome move in the right direction, but it does not go far enough to protect consumers from paying disproportionately high fees for what is often very little work. The Ministry of Justice estimates that the average amount of commission charged to consumers by CMCs is 28% plus VAT. The FCA estimates that the average payout for PPI mis-selling is around £1,700 which means that a CMC would, on average, charge a successful claimant £476 plus VAT.

Although the proposed fee cap will reduce the amount that consumers have to pay to CMCs, it would still mean an average charge of £340, with VAT on top. If the Government want to take meaningful action to protect consumers from high fees, they should propose a solution that allows consumers to keep 100% of their PPI compensation. They should require firms to pay CMC costs for PPI claims—capped at 20% and VAT—when they are at fault and the consumer has used a CMC rather than claiming directly.

This measure would apply only for the interim period until new FCA regulations come into force, or until August 2019, which is the deadline for making PPI claims, whichever is sooner. This would incentivise firms still paying compensation—and it is shameful that they still are; getting justice for the people concerned is like pulling teeth—to proactively reach out and encourage consumers to make claims directly to them, and I am bound to say that it is something that should and must happen. It would also fully protect consumers from paying high charges to CMCs.

In summary, the Government’s proposal is a welcome step in the right direction, but I would welcome an explanation from the Minister as to why he cannot take this further step that would see those that were wronged receive 100% of the compensation so that this wrong is put right.

Photo of John Glen John Glen Minister of State (Treasury) (City), The Economic Secretary to the Treasury

I am grateful to the hon. Gentleman for setting out amendments 47 and 48, which seek to make firms at fault pay the fees for claims management services used to pursue successful PPI claims. I understand that this approach is intended to incentivise firms to be more proactive in offering compensation when dealing with consumer complaints. However, it could encourage more speculative and unmeritorious claims, adding waste to the redress system, to the detriment of consumers and the industry. The amendment also has the potential to allow CMCs to charge consumers directly when they are unsuccessful in pursuing a PPI claim. This would serve only to add to the incentives for taking forward speculative claims, and I am not sure that that is the Opposition’s intention.

I also do not believe that the measure is necessary. The FCA is already taking direct action to ensure that firms do not make it difficult for consumers to claim compensation, and there have been significant improvements in the handling of PPI complaints by firms. By September 2017, firms were upholding around 80% of claims. Since January 2011, firms have handled over 20.8 million PPI complainants and paid over £29 billion in redress to consumers found to have been mis-sold a PPI policy, and rightly so.

In addition, as of March 2017 firms had sent over 5.5 million letters to customers they identified as being at high risk of having suffered a past mis-sale and who had not complained, inviting them to do so. The FCA also launched a two-year consumer awareness campaign in August 2017, paid for by the relevant firms, to raise awareness of the deadline and encourage consumers to decide whether to complain, as well as highlighting free routes for pursuing a claim.

Finally, it is important to note that consumers do not need to use the CMCs to make a claim. They can go directly to the relevant firm and subsequently to the Financial Ombudsman Service for free. Making a complaint is a simple process that many people will be able to do for themselves. A number of sources of information are available to help individuals to understand how to make a complaint, including websites and phone lines for the FCA and Financial Ombudsman Service. In the light of these arguments, I encourage the Opposition spokesman to withdraw the amendment.

Photo of Jack Dromey Jack Dromey Shadow Minister (Work and Pensions) (Pensions) 10:15 am, 6th February 2018

I will make two points in response. First, the Minister is right to say that there are channels other than CMCs, which we will come to later. Until such time as we ban cold calling by CMCs, there will continue to be an industry of CMCs out there ringing people up to ask, “Have you got a PPI claim?”

Secondly, I do not see the problem in sending an unmistakable message to those who have wronged the public that they must put that right, and that they must do so proactively. Rather than sitting on the knowledge of a lot of mis-selling, failing to put that right and waiting until a claim is made, the better approach in the public interest would be to send the unmistakable message that it is better to settle with those who have been wronged, or else.

I am not completely convinced by the Minister’s reply, but I am convinced that he—a decent man with an open mind—will reflect on this further. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss clause 28 stand part.

Photo of John Glen John Glen Minister of State (Treasury) (City), The Economic Secretary to the Treasury

Clause 27 deals with the application and enforcement of the interim fee cap before the transfer of claims management regulation to the FCA. It states that the cap will be implemented by the claims management regulation unit and legal services regulators in England and Wales. It also defines the first interim period as the period beginning with the day the cap comes into force, two months after Royal Assent, until the day before regulation transfers to the FCA. It is clear that the clause plays an integral part in establishing the interim fee cap.

Question put and agreed to.

Clause 27 accordingly ordered to stand part of the Bill.

Clause 28 ordered to stand part of the Bill.

Clause 29