What is it?
The Financial Guidance and Claims Bill makes changes to the regulation of Claims Management Companies (CMCs), who provide assistance to individuals in making claims in sectors such as personal injury and PPI.
The Bill proposes to transfer regulatory responsibility from the MOJ to the Financial Conduct Authority (FCA). Complaints handling would also be transferred from the Legal Ombudsman to the Financial Ombudsman Service. The FCA would also be able to impose a cap on the charge that CMCs can charge for their services.
What stage is it at?
The Bill had its third reading in the House of Lords on 21 November 2017. The case still has to go through the House of Commons for further consideration and debate. Given the tight legislative agenda in light of Brexit, this may take some time. If and when there are any amendments proposed by the Commons, the Bill will be returned to the House of Lords for their consideration.
Once both the Commons and Lords are in agreement over the exact wording of the Bill, it will be ready for royal assent (i.e., to be formalised as an Act of Parliament). This is not likely until at least the second half of 2018.
The Scottish Government has advised the UK Government that they "will seek the legislative consent of the Scottish Parliament for the CMC provisions as part of the wider legislative consent Motion for this Bill".
What is the background to the Bill?
The 2017 Conservative manifesto stated that a Conservative government would also consider a ban on companies “cold calling people encouraging them to make false personal injury claims”.
The Cabinet Office’s background briefing for the Queen’s Speech in June 2017 stated that changing the regulator of CMCs to the FCA would protect consumers from malpractices such as “nuisance calls and the encouragement of fraudulent claims”.
Additionally, the manifesto stated a Conservative government would address “exaggerated and fraudulent whiplash claims”. The Cabinet Office’s briefing explained that this latter measure would be taken forward in a future ‘Civil Liability Bill’.
What you need to know?
- The current draft Bill available needs to be read in line with the Note of Amendments proposed by Baroness Buscombe and subsequently approved by the House of Lords at the third reading
- The amendments indicate that the majority of the Parts of the Bill relating to Claims Management Companies will now apply in Scotland, having initially been restricted only to England and Wales. The sections excluded include Schedule 4 (which deals with transfer schemes) and section 20(12)which relates to Schedule 4
- The Bill, if approved in its now amended form, has the effect of transferring regulation of CMCs to the FCA
- It amends section 21 of the Financial Services and Markets Act 2000 (FSMA2000) so that a "person cannot communicate an invitation or inducement to engage in controller claims management activity unless authorised"
- It essentially will allow the FCA to impose a cap on the fees that CMCs can charge for their services and will allow the Financial Ombudsman Service to take over the investigation and determination of consumer complaints about services
- Despite proposals in the House of Lords, the Bill does not ban cold calling or bring Medical Reporting Organisations within the scope of the FCA
- "Claims management activity" is defined as a "specified activity" for the purposes of the FSMA2000. That subsequently clarifies that an activity is a regulated activity for the purposes of the FSMA2000 if it is "an activity of a specified kind which is carried on by way of business and relates to a claim of a specified kind"
- The Bill further inserts a new section into the Financial Services and Markets Act 2000 which enables the Treasury to specify circumstances in which a person is, or is not, carrying on a regulated claims management activity
- It is not clear from the Bill exactly how, if at all, the Law Society of Scotland will fit into matters
Why is the Bill being introduced?
- As Lord Hunt of Wirral said at the third reading of the bill "One of the biggest problems posed by CMCs is the potential for customers to lose a large proportion of their damages in fees despite the fact that the level of expertise required for a CMC to manage claims is remarkably low"
- As the Explanatory Notes to the Bill indicate, there are currently around 1,400 authorised claims management companies in operation
- The Claims Management Regulation Unit was established in the MOJ in April 2007 and regulates CMCs active in England and Wales. It was intended to be an interim measure
- There is evidence of malpractice in the sector and common complaints "included poor value for money, misrepresentation of the service offered to consumers, and reliance on nuisance tactics, such as unsolicited calls and texts"