Insurance lawyers’ call for the government to extend the fee cap to be imposed on PPI cases to personal injury claims ahead of the whiplash reforms fell on deaf ears this week.
The proposed cap – being introduced under the Finance Guidance and Claims Bill – would limit the fee claims management companies (CMCs) and law firms could charge on PPI cases to 20% of compensation.
CMCs specialising in PPI have warned the government that this could “destroy” their industry, while solicitors handling these cases have called to be exempt from it.
However, during Tuesday’s House of Commons debate on the bill, the government made no changes to its proposals.
Insurance law firm Keoghs said the impending cap on PPI would result in CMCs “looking to other areas to generate business” and the planned rise in the small claims for personal injury cases gave them “more of a potential market to target”.
In written evidence submitted ahead the bill’s committee stage, Keoghs said: “We have real concerns that a potential unintended consequence of proposed government reform in the personal injury space will be a growth in CMC activity which, if unfettered, could drive an increase in claims frequency and cost.
“Responsible, regulated and fee capped CMCs may be able to support access to justice.
“However, a fee cap must be set in place to control the excessive behaviours demonstrated by firms who see injured people simply as a valuable commodity and the claims process as a means to make excessive profits at the public’s expense.”
Keoghs predicted that the CMCs’ practice of charging 35%-40% of sums recovered in PPI claims would be “migrated” to personal injury claims
“Even after the government’s proposed introduction of tariffed damages, the opportunity to integrate credit hire and credit repair elements can mean that claims are worth pursuing by CMCs, particularly in the absence of a percentage fee cap.
“We believe that it is crucial to extend the fee cap for CMCs to PI claims (which should include noise induced hearing loss and holiday sickness claims). If this doesn’t happen, the absence of a cap will fuel frequency and will drive severity – it is easy to see how CMCs, on a 40% fee of damages recovered, would be incentivised to maximise damages which in turn could lead to more fraudulent behaviour in the personal injury compensation arena.”
Keoghs added that while the government may consider that the personal injury claims portal is sufficiently straightforward for claimants to bring their own claims, “history teaches us that in a very simple PPI claims process, more than 85% of claimants used a CMC”.
Clause 27 of the bill would allow an interim cap of 20% to be imposed on CMCs and law firms handling PPI claims, in advance of the Financial Conduct Authority (FCA) taking over responsibility for claims management regulation, expected in April next year, which is only four months before the government-imposed deadline for submitting PPI claims.
Fellow defendant law firm DWF said the increase in the small claims limit for personal injury cases and the whiplash reforms could also “be effective” by April 2019.
It said that “where there is already an expectation that CMCs will have a more prevalent role in the personal injury market post reform of whiplash claims, we believe that it is now essential for a fee cap to be introduced into the personal injury sector at the current stage, before that reform is introduced”.
The PPI fees cap would apply both to CMCs and law firms. Solicitor Negar Yazdani, founder of London firm BlackLion Law, which specialises in financial claims, told MPs that law firms should not be restricted like this.
She said it would have “the unintended consequence of restricting the ability of law firms to take on complex PPI cases on behalf of the consumers”.
She explained: “Law firms can identify consumers that have an automatic right to PPI repayment, including public sector employees.
“Law firms can also identify new Plevin claims, reopen previously rejected claims and obtain non-tipping point offers, which CMCs cannot. Law firms have substantially higher costs than CMCs, to pay for qualified lawyers and take cases through the courts.”
Meanwhile, CMCs predicted that the cap would do huge damage to the industry.
Gary Nixon, owner of The PPI Team, said the proposed 20% cap would result in his company running at “a total loss of almost £1m per year”, leading to the 450 people he employed “being made unemployed immediately after the fee cap is in place”.
He said the cap would “put almost every CMC out of business”, which would be “drastically” to the detriment of consumers.
The Claims Guys agreed in their written evidence, warning that imposing the cap would “destroy the CMC market”, with “dire and far-reaching consequences for consumers across the UK”.
In its submission, the Alliance of Claims Companies said its research had found that if the cap was introduced, over two-thirds (68%) of CMCs would cut staff and almost a third (32%) would exit the market completely.