Legal services regulators’ rules: charges for claims management services

Financial Guidance and Claims Bill [Lords] – in a Public Bill Committee at 10:30 am on 6th February 2018.

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“(1) The Law Society of England and Wales, the General Council of the Bar and the Chartered Institute of Legal Executives may make rules prohibiting regulated persons from—

(a) entering into a specified relevant claims management agreement that provides for the payment by a person of specified charges, and

(b) imposing specified charges on a person in connection with the provision of a service which is, or which is provided in connection with, a specified relevant claims management activity.

(2) The Law Society of England and Wales must exercise that power to make rules in relation to all relevant claims management agreements, and all relevant claims management activities, which concern claims in relation to financial products or services.

(3) The Law Society of Scotland may make rules prohibiting regulated persons from—

(a) entering into a relevant claims management agreement concerning a claim in relation to a financial product or service that provides for the payment by a person of specified charges, and

(b) imposing specified charges on a person in connection with the provision of a service which is, or which is provided in connection with, a relevant claims management activity concerning a claim in relation to a financial product or service.

(4) Rules under this section may make provision securing that for the purposes of the prohibition referred to in subsection (1)(a) or (3)(a) charges payable under a relevant claims management agreement are to be treated as including charges payable under an agreement treated by the rules as being connected with the relevant claims management agreement.

(5) In this section ‘regulated persons’ means—

(a) in relation to the Law Society of England and Wales—

(i) persons who, or licensable bodies which, are authorised by the Law Society to carry on a reserved legal activity,

(ii) European lawyers registered with the Law Society under the European Communities (Lawyer’s Practice) Regulations 2000 (S.I. 2000/1119), and

(iii) foreign lawyers registered with the Law Society under section 89 of the Courts and Legal Services Act 1990;

(b) in relation to the Law Society of Scotland, Scottish legal practitioners;

(c) in relation to the General Council of the Bar—

(i) persons who, or licensable bodies which, are authorised by the General Council to carry on a reserved legal activity, and

(ii) European lawyers registered with the General Council under the European Communities (Lawyer’s Practice) Regulations 2000;

(d) in relation to the Chartered Institute of Legal Executives, persons authorised by the Institute to carry on a reserved legal activity.

(6) The rules must be made with a view to securing an appropriate degree of protection against excessive charges for the provision of a service which is, or which is provided in connection with, a relevant claims management activity.

(7) The rules may specify charges by reference to charges of a specified class or description, or by reference to charges which exceed, or are capable of exceeding, a specified amount.

(8) The rules may not specify—

(a) charges for a reserved legal activity within the meaning of the Legal Services Act 2007 (see section 12 of that Act);

(b) charges imposed in respect of—

(i) the exercise of a right of audience by a Scottish legal practitioner;

(ii) the conduct of litigation by a Scottish legal practitioner.

(9) In subsection (8)(b)—

‘conduct of litigation’ means—

(a) the bringing of proceedings before any court in Scotland;

(b) the commencement, prosecution and defence of such proceedings;

(c) the performance of any ancillary functions in relation to such proceedings;

‘right of audience’ means the right to appear before and address a court in Scotland, including the right to call and examine witnesses.

(10) In relation to an agreement entered into, or charge imposed, in contravention of the rules, the rules may (amongst other things)—

(a) provide for the agreement, or obligation to pay the charge, to be unenforceable or unenforceable to a specified extent;

(b) provide for the recovery of amounts paid under the agreement or obligation;

(c) provide for the payment of compensation for any losses incurred as a result of paying amounts under the agreement or obligation.

(11) For the purposes of this section—

‘relevant claims management activity’ means activity of a kind specified in an order under section 22(1B) of the Financial Services and Markets Act 2000 (regulated activities: claims management services), disregarding any exemption in that order for activities carried on by, through, or at the direction of, a legal practitioner;

‘relevant claims management agreement’ means an agreement, the entering into or performance of which by either party is a relevant claims management activity;

‘Scottish legal practitioner’ means—

(a) a person qualified to practise as a solicitor in accordance with section 4 of the Solicitors (Scotland) Act 1980;

(b) European lawyers registered with the Law Society of Scotland under the European Communities (Lawyer’s Practice) (Scotland) Regulations 2000 (S.S.I. 2000/121);

(c) foreign lawyers registered with the Law Society of Scotland under section 60A of the Solicitors (Scotland) Act 1980;

(d) an incorporated practice within the meaning given by section 34(1A)(c) of the Solicitors (Scotland) Act 1980;

(e) a licensed legal services provider within the meaning of Part 2 of the Legal Services (Scotland) Act 2010 (see section 47 of that Act) that provides, or offers to provide, legal services under a licence issued by the Law Society of Scotland;

‘specified’ means specified in the rules, but ‘specified amount’ means an amount specified in or determined in accordance with the rules.

(12) This section does not limit any power of the Law Society of England and Wales, the Law Society of Scotland, the General Council of the Bar or the Chartered Institute of Legal Executives existing apart from this section to make rules.”—

This new clause makes provision about rules prohibiting charges for claims management services which may be made by the Law Society of England and Wales, the General Council of the Bar, the Chartered Institute of Legal Executives and (where the claim concerns financial products or services) the Law Society of Scotland, and imposes a duty on the Law Society of England and Wales to make such rules in relation to claims concerning financial products or services.

Brought up, and read the First time.

With this it will be convenient to discuss Government new clause 5—Extension of power of the Law Society of Scotland to make rules.

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

New clauses 4 and 5 place a duty on the Law Society of England and Wales to cap fees in relation to financial service claims management activity, and give the Law Society of Scotland a power to restrict fees charges for that activity. The clauses also give some legal services regulators in England and Wales a power to restrict fees charged for broader claims management services, and give the Treasury a power to extend the Law Society of Scotland’s fee-capping power to broader activity in the future. As I am sure hon. Members are aware, claims management services are carried out not only by claims management companies, but sometimes by legal service providers as well. That is why the Government are introducing the new clauses. They will ensure that consumers are protected no matter which type of claims management service provider they use—whether regulated by the legal service regulators or by the Financial Conduct Authority.

As Members will know, fees charged for claims management services have attracted severe criticism. The Public Accounts Committee 2016 report on financial services mis-selling commented:

“It is a failure of the system of regulation and redress that claims management companies have been able to make up to £5 billion out of compensation to victims of mis-selling.”

The Bill already contains provisions to ensure that the FCA will cap fees in relation to financial product and services claims, and new clause 4 replicates that duty in relation to the Law Society of England and Wales. It also mirrors the FCA’s broader power to restrict fees for claims management activities by providing a similar power to the General Council of the Bar, the Chartered Institute of Legal Executives, and the Law Society of England and Wales. That power will enable them to make rules that cap the fees that legal service providers charge for claims management services. That will enable the legal services regulators to adapt to any future changes in the market, alongside the FCA.

New clause 4 also gives the Law Society of Scotland a power to restrict fees in relation to financial services claims management, and new clause 5 gives the Treasury a power to extend that provision to include wider claims management activity, should that be required in the future. That gives the flexibility required to respond to any future changes in the claims management sector. Although the Government are of the view that the regulation of claims management activity is reserved, we have worked in a spirit of co-operation with the Scottish Government to ensure that the provisions are fit for purpose in Scotland, and that Scottish consumers have the same high standards of protection when using claims management services as consumers in England and Wales. I hope Members agree that the new clauses collectively provide for the best protection of consumers across Great Britain.

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

The Minister was right to refer to the Public Accounts Committee report. It is nothing short of scandalous that there has been an immense industry, often on the back of misery. Consumers deserve to be properly protected in future. The clauses are sensible because they go beyond claims management companies, with the duty on the Law Society. Of course, it is about not only CMCs, but legal service providers.

Finally, with regard to new clause 5, it makes sense for there to be flexibility to extend the provision to restrict fees in the future, given potential changes in the nature of the industry.

Question put and agreed to.

New clause 4 accordingly read a Second time, and added to the Bill.

New Clause 5