SRA warns law firms and CMCs over excessive PPI fees

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PPI: SRA warning

Law firms have been warned not to charge excessive fees for payment protection insurance (PPI) claims, while claims management companies (CMCs) were told that becoming alternative business structures (ABSs) was not a way to avoid caps on their fees.

The Solicitors Regulation Authority (SRA) issued a warning notice on the subject yesterday – exactly two years before the deadline for bringing PPI claims set by the Financial Conduct Authority expires.

The SRA said it had received reports suggesting law firms had made claims without identifying clients, getting the permission of clients or investigating whether there was a valid claim, and submitted false claims hoping they would not be checked.

The regulator said it had also received reports of solicitors charging “unreasonable costs for a limited amount of work”.

The SRA said it was unlikely that solicitors who charged fees “greatly in excess” of their hourly rate would be acting in the best interests of clients.

“This is particularly the case where the work carried out is limited, for example, to submitting a notice of claim and agreeing settlement. It is important that you do not exaggerate the time or effort involved in submitting a claim.”

As for CMCs, the regulator warned them not to think they could avoid a proposal by the Claims Management Regulator to cap fees at 15% of damages by becoming ABSs.

The SRA said those involved should be aware that when investigating complaints about PPI fees, it was likely to consider anything above 15% to be unreasonable, unless the work involved and risk to the firm “clearly demands” a higher rate.

“It should also be noted that by becoming an ABS firms will not avoid regulation – any costs charged by the ABS will need to fair and reasonable in the circumstances.”

The SRA said law firms should make sure that clients did not arrive as a result of cold calling by the firm or third parties.

“Some third parties obtain client details illegally and you may be at risk of infringing the Data Protection Act by the unauthorised use or handling of data.”

The SRA said solicitors should ensure that introducers were aware of their duties and checked regularly that their marketing methods did not put law firms in breach of the rules.

Firms were reminded to ensure they had correct details of the client’s identity and claim, and that they needed evidence of a “sound basis” for a claim and valid instructions.

On referral arrangements, the SRA said solicitors must be satisfied and have evidence that these did not affect their ability to take “proper and ongoing” instructions from clients.

“You have a duty to ensure that contracts or other arrangements between your client and a referrer are fair and to cease dealing with a referrer whose contractual terms or other conduct are adverse to your clients’ interests or to the rule of law.”

Paul Philip, chief executive of the SRA, commented: “The vast majority of solicitors provide a good service, helping to make sure their clients are properly compensated.

“A tiny minority however fall below the high standards we and the public expect of them. If we find evidence that solicitors have not acted in the way they should, we will take action to protect the public.”