BRIEFING NOTE ON SECOND READING OF LEGAL AID, SENTENCING AND PUNISHMENT OF OFFENDERS BILL - Clauses 54-58 (Referral fees)


In November, the Government introduced these new clauses with very little debate at report stage in the Commons. While their aim – of banning ‘referral fees’ – is laudable, we are very concerned with the way they have been drafted and introduced.

• We are also concerned by the lack of guarantees in the Bill that only legitimate claimants should be able to pursue legal action, and spurious claims will be stopped swiftly and effectively.
• We believe that the Government is not proposing adequate safeguards, in these clauses, to ensure that people who have been injured by someone else are able to secure the correct damages to compensate for their injury.
• We believe that the Government must do more to crack down on the inappropriate and reckless forms of marketing used by cowboys, whilst also protecting the position of those businesses who choose to adhere to best practice and regulation in their marketing in the forms of the ASA, BCAP and CAP codes.

We believe the following unethical practices should be banned:

• ‘Nuisance marketing’ in personal injury – specifically advertising in hospitals, cold calling, spam texts
• ‘Third party capture’ (insurers directly contacting third parties who have been involved in accidents with their own customers, and pushing them into making and settling claims)
• Financial incentives to claim
• Selling of contact and case details of personal injury victims without their consent
• Auctioning of claims to the highest bidder
• Marketing that is not accompanied by a service to filter out spurious claims

We would like assurances that the following will not be banned by the Bill:

• Pooled marketing services for lawyers, or any cap on legitimate marketing spend
• Payments for other genuine services provided by ethical claims management companies and others, such as marketing, sales, product development, quality assurance for consumers and client vetting for solicitors; we also oppose any cap on such payments for genuine services

These are explained in more detail below:

1. Legitimate marketing activities & cracking down on bad practice

Genuine accident victims have a right to justice and to the damages that they deserve from the person who caused their injury, and would find it very difficult to access legal representation if the legitimate marketing activities of legal firms are impeded.

National Accident Helpline exists as a national brand for the marketing activities of over a hundred leading solicitor firms around the country. This scale of marketing allows tens of thousands of people, who would otherwise find it very difficult to access legal support, to obtain legal representation and pursue legitimate claims. Part of our quality approach is that we also strictly filter those who respond to marketing, and every year tell over 150,000 people who contact us that they do not have a claim – in that way we are key to filtering out people from pursuing potentially spurious claims.

That is why we believe that Peers should seek assurances from Ministers that legitimate pooled marketing of our type is specifically excluded from any ban or cap in this Bill. If such legitimate marketing (which is already regulated by the ASA and others) were to be banned, thousands of genuine accident victims would be left without legal representation. At the same time, we believe that Peers should press the Government to finally outlaw:

• ‘Nuisance marketing’– specifically advertising in hospitals, cold calling, spam texts

• Financial incentives promised to potential claimants to incentivise them to pursue claims

• Direct selling of claimants’ contact details or case details without their explicit consent

• Auctioning of claims to the highest bidder

• Marketing of personal injury services that is not accompanied by a service to filter out spurious claims

• Marketing of personal injury services that does not adhere to the ASA, BCAP and CAP codes

2. Genuine legal services

Clauses 55-58 could also be read as banning, or capping the legitimate costs of, genuine high value services. These include the provision of necessary medical reports for clients, quality assurance for solicitor firms, sales and product development.

While we agree that all measures should be taken to ensure that referral fees are not ‘dressed up’ as services and charged as such, we believe strongly that to ban or limit these commercial activities will drastically restrict the ability of legal firms to offer the best advice to genuine claimants.

We are very keen for Peers to seek assurances from Ministers that genuine services, such as provision of medical reports, quality assurance, sales and product developments, are specifically excluded from any ban or cap in this Bill.

3. Third Party capture

We are very concerned that the Bill does not intend to ban the reprehensible practice of third party capture. This is the practice whereby someone is contacted by an organisation with which they have no relationship whatsoever, and encouraged to make or settle a potential claim with them. For example, if you were involved in an accident, this could be the insurer of the driver of the other vehicle, with which you have never chosen to have any relationship at all.

We believe that this third party capture is a heinous breach of privacy and a person’s right to make their own decision as to whether to contact someone about a claim. Third Party capture massively increases the number of claims in the UK legal system, and clearly represents a substantial conflict of interest for insurers. We believe that the Government must take this vital opportunity to crack down on this terrible practice and hope Peers will urge the Government to do so.

We have drafted a number of amendments to ensure the outcomes proposed above, and we hope that you will consider tabling or supporting these new clauses. These are appended below.

Proposed amendments to LASPO Bill ahead of Second Reading

Banning nuisance marketing

Original clause:


54 (2) A regulated person is also in breach of this section if in providing legal services in the course of prescribed legal business the regulated person—

(a) arranges for another person to provide services to the client, and
(b) is paid or has been paid for making the arrangement.

Amendment:

Page 39, line 24, after ‘arrangement’, insert ‘or
“(c) arranges for another person to provide, or is paid for the provision of, marketing services by unsolicited SMS text message, unsolicited telephone calls or any marketing in a hospital or other primary treatment centre.” ‘

Notes:

• This clause bans nuisance marketing, which fuels perceptions of a compensation culture and impacts on the ability of genuine accident victims to obtain redress.
• It will have the benefit of driving the real unscrupulous operators out of the market.

Exempting pooled marketing services

Original clause

55 (8) Rules under subsection (2) may provide for the payment to be treated as a referral fee unless the regulated person shows that the payment was made—
(a) as consideration for the provision of services, or
(b) for another reason,
and not as a referral fee.

Amendment

Clause 55 (8)
Page 40, line 36, after ‘reason’, insert ‘such as the provision of a pooled marketing service’.

Notes

• The ban on pure commercial referral fees, which is right, must exclude provision of legitimate marketing services, which enable innocent injury victims to easily access the requisite legal representation.
• The Government must ensure that the ban must also exclude other services such as sales, marketing, product development, vetting of clients, upholding solicitor standards, and debt control.
• Amendment can be withdrawn on Ministerial assurances of the above.

Banning third party capture

(NB – this is very similar to the clause tabled by Andy Slaughter in the Commons, which was not called)

New Clause

‘(1) It shall be an offence for a third party’s insurance company to make an approach to a potential claimant who may have a cause of action arising from a personal injury against the insurance company, or their policy holder or for the insurance company, to make an offer to settle a claim if that approach is—
(a) unsolicited; or(b) the claimant has legal representation known to the insurance company.
(2) For the avoidance of doubt “unsolicited” in this section includes the mere intimation of a claim to the third party or his insurance company without a specific request for settlement proposals.


(3) If the third party’s insurance company makes an offer to settle in circumstances not prohibited by this section, then it must ensure—(a) that adequate medical evidence of the personal injury is obtained and shared with the claimant; and
(b) the claimant is advised of his right to obtain legal advice before deciding upon the offer; and in the event of acceptance, that the offer is in full and final settlement of the claim and cannot later be reopened, if that be the case.


(4) In the event of a conviction under this section the penalty shall be an unlimited fine.’

Notes:

• This would ban ‘third party capture’, the practice of insurers directly contacting third parties who have been involved in accidents with their own policyholders, suggesting that they make a claim through the insurers’ own legal services (or referred lawyers).

• Third Party Capture massively increases the number of claims in the UK legal system, and clearly represents a substantial conflict of interest for insurers.

Cost cap on services

Original clause

55 (9) For the purposes of provision made by virtue of subsection (8) a payment that would otherwise be regarded as consideration for the provision of services of any description may be treated as a referral fee if it exceeds the amount specified in relation to services of that description in regulations made by the Lord Chancellor.

Amendment

Page 50, leave out clause 55 (9).

Notes:

• This would remove clause 55(9), which is redundant and potentially very damaging to the ability of accident victims to obtain high quality legal representation.
• It is redundant because 55 (8) should ban the idea of pure fees being dressed up as anything else.
• It is damaging because genuine services that are provided by legitimate and high quality legal services firms, such as the provision of medico-legal reports, or the upholding of standards amongst solicitor firms, could be caught by this ban and cap.
• The Government must therefore ensure that any cap excludes legitimate services such as sales, marketing, product development, vetting of clients, upholding solicitor standards, and debt control.
• Amendment can be withdrawn on Ministerial assurances of the above.

Background on National Accident Helpline and our position

• We were formed in 1993 by a group of solicitors who realised that consumers needed to see a welcoming and less confusing face if they were to engage with their legal rights and, where appropriate, pursue their rights to claim for personal injuries suffered by them.

• During 2011 NAH will provide guidance and support to 230,000 people who feel unable to approach solicitors directly.

• NAH does not charge referral fees or engage in nuisance marketing, and recognises that many of the organisations that do charge referral fees are guilty of illegal and unethical practices. NAH exists as a national brand for the marketing activities of over a hundred leading solicitor firms around the country. This scale of marketing allows tens of thousands of people, who would otherwise find it very difficult to access legal support, to obtain legal representation and pursue legitimate claims.
• Many people, particularly from lower socio-economic backgrounds, have a very limited understanding of how to make a claim following an accident and would never go directly to a law firm. A recent survey conducted by Opinion Matters for NAH found that only a small fraction of people are aware of their rights to seek redress for injuries caused by someone else’s negligence, and that major barriers are dissuading people from accessing the legal system when they have every right to do so.

• Our model serves a vital role in that our legally trained call centre staff filter out large numbers of weak claims from entering the legal system (130,000 in 2010). If the Government is trying to stamp out spurious claims, its job will be much harder without the NAH model.