LSB warns regulators over referral fee ban as government unveils CMC crackdown

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By Legal Futures

23 August 2012


Rousell: we want consumers to be better protected

The Legal Services Board (LSB) has warned regulators not to go further than the legislative requirements for the impending ban on referral fees in personal injury, calling for “a liberal approach” that does not prevent alternative business structures (ABSs) effectively circumventing it.

It came as the government unveiled proposals for a crackdown on claims management companies (CMCs), although no new powers to deal with unsolicited texts are planned.

Last year the LSB had advised the government that no ban on referral fees was necessary, but the Ministry of Justice decided to go ahead with one anyway. The LSB also published guidance that any ban on referral fees would need clear justification.

In a letter to regulators on the impact on the guidance of the ban – contained in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) – LSB chief executive Chris Kenny said it will be “important to ensure that [new rules banning referral fees] do not go beyond the obligations in LASPO”.

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He continued: “That legislation bans referral fees, but does not prohibit, for example, alternative business structures that effectively do away with the need for referral. A liberal approach that supports the regulatory objectives of the Legal Services Act 2007, while properly delivering the legislative intent of LASPO, will therefore be crucial in making sure that both pieces of legislation are implemented effectively.”

The letter also warned regulators against using the opportunity of LASPO to extend the ban beyond personal injury without “clear supporting evidence”.

Meanwhile, a consultation on the rules governing CMCs proposes ending verbal contract arrangements between consumers and CMCs and enforcing a written contract before any fee can be taken.

Other key proposals include requiring CMCs to inform their clients of any suspension or variation to the business’s authorisation, and that CMCs only be allowed to refer to their regulatory status as being regulated by the claims management regulator – rather than the MoJ as that can be misconstrued as government endorsement.

Kevin Rousell, the head of claims management regulation, said: “Time and time again we see examples of consumers who have inadvertently agreed to a contract with a CMC without a written contract in place. We want consumers to be better protected by making the terms of any contract clearer.”

The consultation also considers the position of consumers who are being left out of pocket when using a CMC to make a payment protection insurance refund claim. This would be where the bank or institution uses the entire refund towards paying off an existing loan, credit or overdraft the customer still has with the bank. As many consumers expect a ‘cash in hand’ payment, this can lead to the consumer needing to pay the fees from using a CMC from alternative means.

The consultation asks whether a possible ban should be put in place on CMCs charging customers who are in this position.

The regulator is investigating individual CMCs believed to be buying leads generated from unsolicited texts and automated calls, and has formed a working group with Ofcom, the Information Commissioner’s Office, the Office of Fair Trading the Direct Marketing Association and the mobile marketing industry (including network operators) to tackle the issue.

The consultation said: “Adequate powers are already in place to tackle the problem of unsolicited marketing calls and text messages. The focus in this area is on joined-up investigations to enforce those powers, identify the perpetrators and improve communications to consumers about dealing with spam texts.”


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