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Referral fee ban is SRA's mission impossible
Wednesday 13 June 2012 by John Hyde
As any lazy person knows (I’m told), it’s pretty easy to get out of doing a job you hate. Just moan incessantly about having to make the tea/clean the bathroom/take a trip to Westfield, to the point where you’ll never be asked again. If all else fails, do such a botch job that you’ll never be asked again.
Now is it me, or does the SRA seem distinctly reluctant to police the ban on referral fees?
Today’s discussion paper outlines how the ban will be difficult to enforce and nigh-on impossible to define.
The problem from the start for this ban has been in its execution. It’s difficult to argue that referral fees are an ugly blemish on the legal profession, creating an unnecessary and costly third party whose sole intention is to find (or manufacture) as many claims as possible.
Law firms are forced to dance with the devil or leave the party altogether, paying for the work that keeps them in business. It’s become a game of pass the parcel involving accidents victims’ details, with a prize at every stage of the game.
Where the government has never quite nailed the ban is in the detail. It’s easy to spot a referral, or a payment, but how do you decide whether the payment is for the referral?
If a group of law firms clubs together to pay an advertising agency to bring in work, is that any more morally acceptable than paying referral fees to a claims management company? Probably not – yet the government has no intention of preventing this type of arrangement.
Law firms cannot produce clients out of thin air – there has to be a process of paying to attract more work. Who receives this payment is surely a matter of semantics.
Even more impossible to tackle is the ABS-shaped elephant in the room. Quite simply, if a claims management company can no longer receive fees from a law firm, the two entities can simply merge together and do it all in-house. These fusions will be inevitable - undoubtedly against the spirit of the ban, but crucially not the wording.
The SRA is quite clear: as long as there is no threat to the public interest, there is no way of preventing this arrangement. If the government really wants to cut out spurious and fraudulent claims, this is surely not the way to go about it.
The ultimate problem with a ban on referral fees is that the genie has long since escaped the bottle. There are too many companies that make too much money from this system (and too many law firms that rely on this marketing for their very existence).
By 2011, there were 2,533 claims management companies in existence, providing 65% of the personal injury sector’s turnover. This business may be grubby, but it’s bringing in £377m every year to the legal profession.
This is a ban grounded in good intentions but doomed by practicality.
The SRA cannot be expected to police it without more backing and clarity from central government. I wouldn’t blame them for trying everything to get out of this poisoned chalice.
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