Society formally urges Clarke to ban referral fees
The Law Society has written to justice secretary Kenneth Clarke urging him to act immediately to ban referral fees, after he revealed last week that he is ‘considering’ the issue.
Society president Linda Lee said she had met with Clarke and minister for employment Chris Grayling last week in the context of the government’s health and safety review, to raise her concerns over the ‘unethical’ fees.
She then wrote to Clarke on Friday to formally urge him to act.
Lee said: ‘We are asking the government to step in and ban a practice that is ethically wrong, treats accident victims as commodities for sale and adds no value to the justice system.’
In her letter to Clarke, Lee said: ‘We are, as you will be aware, deeply disappointed by the Legal Services Board’s decision [not to ban] referral fees… The Law Society supports the recommendation by Lord Justice Jackson that the payment of referral fees should be prohibited, provided that this applies across the entire legal sector.'
She added: ‘We believe that there will be major benefits to claimants and the insurance industry alike if insurers are not permitted to auction claims or sell them on to solicitors or other organisations.
‘The Legal Aid, Sentencing and Punishment of Offenders Bill provides an immediate opportunity for government to take action on referral fees.’
Tim Oliver, president of the Forum of Insurance Lawyers, also called on Clarke to ban the fees, or at least cap them. He suggested that a reduction in fixed fees and hourly rates in the system would be a means of curbing the fees.
Oliver said: ‘Referral fees provide no benefit to the system and should be banned, or at the very least capped.
‘They encourage bad behaviours and with the Bribery Act introduced last week, could even be considered a quasi form of bribery.
‘FOIL has also proposed that fixed fees and hourly rates in the personal injury system be reduced, which in turn would lead to a reduction in the price of referral fees.
‘This would be a market mechanism by which referral fees could be curbed while the government considers the practicalities of introducing a ban.’
He added: ‘The associated practice of harassment and incitement to litigate via unsolicited text messages to people who often have not even had an accident should also be banned.’
Clarke revealed that he was ‘considering’ the issue of referral fees during a debate last week following the second reading of the government’s Legal Aid, Sentencing and Punishment of Offenders Bill, which includes reforms to the funding of civil justice cases.
Responding to concerns raised by Liberal Democrat Sir Alan Beith over the 'scandal' of referral fees and the lack of any mention of them in the bill, Clarke said the government had not dealt with the parts of Lord Jackson's proposals covering referral fees because of the Legal Services Board's review of them.
'We now have its report, and the under-secretary of state for justice and I are considering referral fees,' he said.
The fees have been propelled into the media spotlight following a report by former justice secretary Jack Straw, which criticised insurers’ practice of charging referral fees to pass on personal injury cases to claimant lawyers.
Last week, the House of Commons transport committee said it would re-open its inquiry into the cost of motor insurance in order to hear oral evidence from Straw.
Comments
Why does the Law Society need
Why does the Law Society need the Government to act?
Why doesn't the SRA just issue a rule declaring that paying a bribe to get work is unlawful? This could coincide with a statement from the Law Society that bribes used to be contrary to the professional conduct rules but the Society was forced by the OFT to scrap that position.
In other words, lets have an effective PR campaign. What are the chances? Nil, because the Society is a set of total amateurs way out their depth in the modern political (not to mention commercial) world.
Law of unintended consequences
All those who are calling for a ban on referral fees should really think hard about the consequences. The ban is being called for on referral fees, not just PI and RTA referral fees, ALL referral fees. That means all of you who pay for work, at all, will suffer.
The LS are, as usual, throwing the baby out with the bath water and if this gets passed then the entire legal market will be ruinous to so many smaller firms. They really come over as small practitioners with no clue still living in the last century.
If this is a political issue, which it appears to be, then by all means crack down on claims farmers and nefarious practices such as texting and cold calling those who have not suffered an accident (which is in breach of the Rules anyway). Ban insurers referring work to third parties and selling on details. Beef up sentencing and enforcement on insurance fraud. All this can easily be achieved without a ridiculous ban on all referral fees.
It's 2011, not 1811 and no matter how outdated your views actually are of the commercial and legal world, surely those calling for a ban must be able to realise that you cannot undo what has already been done. Even if a ban were to be imposed do you really imagine that the situation would just go back to the ridiculous state of affairs in the 90s when people were paying "marketing costs" to people?
Strangely there are many of
Strangely there are many of us out here who do not pay anyone for work and never have.We prefer to rely on good old reputation, ability, honesty and integrity.I find it odd that the proponents of referral fees never seem to address the independence and conflict issues but keep banging on about the date as if time advancing necessarily involves the abandonment of professional principles
Principles
You may well have principles, but unless you engage with the issue rather than take a "principled" view, you will become like the shops on my Gran's high street that thrived during the last century, boarded up and the customers gone to Tesco.
Simply implying that the referal fee relationship, and therefore those solicitors who work under it, is unprincipled is neither engaging in the debate nor engaging in the reality of practice in the modern world.
So many successful firms have referral relationships with each other and other professions that it is too complex to unwind. A total ban would put virtually every transaction in question. Fine if you're running a 3 partner high street firm, not so fine when you're running a 40 partner city centre commercial practice. It's not just PI claims that would be banned but all referral fees. In the commercial world when dealing with businesses, I fail to see how referrals are a problem.
If you think that banning referral fees will help out firms such as yours, it won't. Those who were smart enough to make millions out of the referral system will be smart enough to make money out of any new regime, and those who hide behind "principles" as a way of wimping out of dealing with the commercial side of running a firm will be swept away along with the butchers and bakers.
So the press are right! The
So the press are right! The legal profession is unprincipled and just after the money!
Brilliant own goal, admitting that law is just like any other business, nothing to do with principle, independence, or damn all else that counts-just the money. What a spiv!
Grow Up
Oh please, grow up. Where on earth did I mention that profit comes before the integrity of the profession? Law firms are a profit making business and don't try to pretend otherwise, however, that doesn't mean that we can't conduct business and advise with integrity.
Err, the bit where you deride
Err, the bit where you deride the "principled view".
The principle, quite simply, is that there is a clear conflict of interest between the client and the referrer. The referrer becomes more important than the client because he is the one providing the "living" for the solicitor not the client. No rule as to percentages of business provided by one referrer can negate this, contrary to the simplistic view of the SRA.
No doubt you will not understand this-best if you get a big boy to explain it to you.
Nonsense
My point was that you rely upon principles to avoid engaging in the practical debate on the consequences of abolition and the modern legal landscape, not that principles in general should be derided. I think that's pretty clear although no doubt it's more convenient for you to read it another way.
How are their competing interests within the meaning of the Rules in the referral relationship? The clients are the clients, the referrer is the referrer. Both their interests are aligned with the firm's. The referrer may be important to the firm but the clients are vitally important to both the referrer and the firm as they can take their business elsewhere if they are not treated well. There is simply no conflict.
If you ban referral fees then something else will take their place like they did before they were legal. All it will do is mean that those of us who do not work in the PI sector (I do not) willl have to scrap mutually beneficial commercial relationships with other businesses such as financial advisors, banks and accountancy firms that impact upon businesses (which I represent and who are big enough to look out for their own interests), not consumers. You are looking at this from a consumer client's point of view, whereas I am looking at it in broader terms.
If they want to sort out the problem then they should address the problems themselves, not referrals in general.
Consider the lesson over.
Regards,
A "Big Boy"
Sorry, got it wrong, thought
Sorry, got it wrong, thought for a moment that the "consumer" clients (thats every client) point of view was what counted when one is a solicitor.
Obviously there's a "broader point of view" which has escaped me all these years-naturally that will operate in the clients best interests.
Bargaining Power
A commercial client has far more bargaining power than a consumer client and thus a consumer client deserves more protection due to this inequality. Consumer clients are not every client. If you work with a listed business, multinational, bank etc, they are not consumers, they are businesses with serious financial clout and often legal departments of their own. They understand the referral business and have no detrimental effect because of it. If they didn't like it, they would go elsewhere. In truth, they don't care as it has no impact on them as the firm pays any referral fee and they are commercial operators who understand the nature of business.
I have many clients such as these, some who were referred by accountants, FSA institutions etc. None have ever complained or suffered in any way from the fact they were referred and many go on to become long standing clients whom I have acted for for many years. I have, touch wood, never had a complaint from any of my clients.
Why should these complex and mutually beneficial relationships (mutually beneficial in terms of the advisor relationship as well as financial) be unwound because of the PI industry and the misguided interests of high street practitioners who think they will benefit from a ban (and don't pretend that's not the real motivation behind this)? The Government should address the problems of the PI and conveyancing industries, not the referral fee system. If you return to my original post, that is what I was explaining.
Handbags at Dawn
I can see a handbag slapping moment coming on reading this thread! Personally I agree with Mr Big Firm lawyer. Lawyers are a bit like cockroaches (with integrity) and can and will survive whatever the policitcal and financial cliamate. We change, we adapt. All this stuff about its either referral fees OR Integrity is complete nonsense. And lets not forget the role of the Media here, who have stirred it all up and love to hate the lawyers. Lets hope ABS bars the media from getting into bed with the lawyers. Afetr all where is the integrity in phone tapping? This morning's latest media phone tapping tale is beyond the pale.
WHAT ABOUT...!
What about estate agents who are not regulated and have been found to pressurise clients into going with "favoured" law firms that pay a referral fee, rather than allowing the client to use one that is better suited to their needs without the payment of a fee?
Whilst regulators rely on law firms to regulate introducers via rule 9 there will always be a problem; law firms will always be conflicted between their duty to comply and their wish to remain in business by sourcing work, sometimes from introducers that clearly beach the rules to keep one step ahead of the competition!
Capping fees will do nothing to address the compliance issues that are clearly present in the system. The SRA cannot just take action against a law firm that is found in breach, but ignore the introducer that induced the breach by non-compliance in the first place, as this does nothing to resolve the fundamental issue; non-compliant introducers will not listen to law firms that try to correct matters, they will just move on to the next mug that is desperate for work and probably doesn't know enough about the rules to make a challenge!
The matter has now become much more serious with the new Bribery Act as anyone failing to ensure a referral arrangement is compliant in all regards will risk committing a bribery offence!
Whether there is a wholesale ban or a wish for more transparency, there will be a requirement for regulators to act in a far more proactive way, either to police what replaces referrals or to clamp down on breaches by introducers!
Things cannot go on the way they are!
The SRA cannot regulate
The SRA cannot regulate anyone other than solicitors. The rule whereby solicitors have to regulate others is a typical bureaucratic "pass the buck" exercise and should be abolished.
The SRA is unlikely to be the main regulator for the legal profession once others are allowed to do litigation and probate. Why would anyone put up with their nonsense-it has been going on far too long. In the words of Tacitus the most corrupt republics have the most laws - and the SRA has overseen the moral corruption of the profession. Now is the time to get back to true professionalism, rather than tick box rule keeping.
If having an independent
If having an independent legal profession is living in the last century, than lead us to it.
It will be the larger firms dependent on the work obtained by bribes which suffer, not the small firms. The large firms are entirely dependent on high volumes to survive, and naturally the claims farmers will suffer, but the client will benefit. After all, it is the clients money which pays the bribe, where else would it come from?
The insurers might even have to be competitive to get business. The advantage to the public of banning referral fees will be immense.
I'm not convinced. The large
I'm not convinced. The large firms will join forces with teh insurers on an ABS basis. Rather than a referral fee the insurers will have a financial interest in the firm and what they lose in a referral fee they will gain from their share of the profits of that firm.
The insurers will not need income from referral fees once their ABS is sorted. Only the smaller firms who aren't reliant on the insurers will; however, any changes are bound to include all referral fees to CMCs and the like.
Not a problem. The ABS firms
Not a problem. The ABS firms should have to disclose the shareholders-it's called transparency, and we are all keen on that.
If the client then selects a firm where there is a clear conflict of interest, best of luck to them. In any event, the media will then just go on about the conflict until the rule is changed-after much bad PR for the profession of course. It won't take long for such conflict to arise.
Let's get rid of the bung culture
Let's be realistic - everyone on the inside knows what a complete con referral fees are. They are crude bribes to inflate fees, diddle the public and direct work to, not the most competent, but the highest bidder. It's a miracle that people have got away with it for so long, but like legal aid frauds, it was bound to come to an end, and the profession will be better without it.
Referral fees
If the underlying issue governing the regulation of referral fees is one of morality then referral fees should be banned or regulated by all professions and undertakings. An NHS dentist, for example, may refer an NHS patient privately to a specialist for dental work not undertaken by the NHS and receive a referral fee which is or can be recovered by the specialist from the patient. This is almost exactly the kind of practice followed in the legal profession. In each case the patient or client is charged for a benefit that accrues only to the referree, and it is the patient or client who pays for it.
Referral fees
This statement is somewhat misleading to anyone not familiar with referral fees.
As any solicitor know referral fees cannot be charged to the client as a disbursement, the solicitor must pay any such fee out of his own pocket and therefore his fees in much the same way he must pay for any advertising in the yellow pages.
Yes, that is what is supposed
Yes, that is what is supposed to happen but the referral fee is too often factored into the legal charges and the fact that such a fee is paid to a third party is buried in the small print. Many firms who pay these fees work as volume conveyancers almost exclusively based upon referrals. Few, if any, clients just walk in off the street and employ their services as they are usually to be found way off the beaten track. Therefore, it is rarely possible to establish that there is any element of overcharging where a referral fee is paid because there is no non-referred work to compare.
In our experience in the conveyancing market, estate agents are entirely unconcerned with regards to the size of the client's legal bill and we usually find that, once the conveyancer to whom the client has been referred adds in a "supplemental" fee for this and another fee for that (often for entirely routine matters which we quote for as standard), the client has paid many hundreds of pounds more for the same (or usually worse) service than could have been obtained from us. No wonder they can afford to pay a referral fee for the work.
Referral Fees
There is a thin line between a referral fee and a bribe.
Where P gives a financial advantage to another person, and intends the advantage—
(i) to induce a person to perform improperly a relevant function or activity, or
(ii) to reward a person for the improper performance of such a function or activity...........
the function
(b) is to be treated as being performed improperly if there is a failure to perform the function or activity and that failure is itself a breach of a relevant expectation.
The expectation test is what a reasonable person would expect in relation to the performance of the type of function or activity concerned.
Would a member of the public (engaging in one of the largest financial transactions of their life), referred to a solciitor by an estate agent, reasonably expect that the estate agent was acting in a position of trust and impartialy?
There is an arguable case that any referral fee that is not clearly disclosed in advance is outlawed by the Bribery Act 2010. Whether the DPP will consent to a prosecution is anyone's guess.
Regardless, the standing of the profession will continue to fall if we do not act simply because the threshold to secure a prosecution is not met..
Bribes
I'm not sure that I'd like to run my firm in the hope that the Attorney General doesn't prosecute me for bribery. I much prefer to be in the ethical and legal clear, and to be able to sleep at nights. I'm not impressed by those who argue that referral fees are ok because there's a lot of it going on. The same can be said about theft, forgery and burglary.
The mechanics of how it works
One estate agent near to us (and part of a big chain) tells people that the transaction won't go through unless they use "their solicitor." The referral fee is £600 and the solicitors charge a base fee of £1,200 for work that would be done locally for half that. If you ask people why they paid it, the typical response is "They phoned my wife and told her we'd lose the house unless we paid it. She was sobbing her eyes out, and I had to pay up."
Double Standards
The other day a friend of mine received a quote for legal work from a Solicitors firm, who had been recommended by his friendly estate agent - who he thought was doing him a favour!! The astute Client then telephoned the Solicitors firm direct and was amazed to find the quote they gave him was £200 cheaper than the one received from the estate agent and clearly wanted to how this could be!!!
Even though the estate agents/solicitors literature clearly explained the referral fee being paid, this payment was not fully understood by the Client.
My friend on this occasion was "disgusted" by this "double standards. Funnily its usually the Client who is the loser as he is the one who has to "pick up" the referral fee by way of an increased bill. On this occasion it backfired on the Solicitors firm, whose reputation with this Client was left in "tatters"
Well, who the hell did he
Well, who the hell did he think paid the referral fee, the agent?
You can correlate the decline
You can correlate the decline in the legal profession's standing with the rise in these bungs. Accident Line, Claims Direct, bowing to the greedy agents and claim farmers -need I go on! They should be banned immediately- it is a disgrace that they remain.
Referral fees
Claim companies need proper and tough regulation. The law firm has become the sugar sponge that so many other agencies feed from. The cmc ties us into the ATE provider, ties us to their medical agency and are now trying tie ins with costs companies - and the cmc.s get a kick back from all of them. If it pays far more to sell claims than to run them its no wonder we are in the mess we are. Im sick of it all and whist it might cost us some profit in the short term the personal injury business has become grubby, soiled, dirty. There can be no better example of sloth and greed in today's commercial society. Lawyers and insurance companies wont sort it out, because lawyers never stand together and spend too much stabbing each other in the back. Last point, those lawyers who claim not to rely on any referral business (because they are so good and word has got about and their ssooo busy...... Course you are! Course you are, you keep believing that rubbish!
You are part of the problem!
"The cmc ties us into the ATE provider, ties us to their medical agency and are now trying tie ins with costs companies - and the cmc.s get a kick back from all of them" - this is an admission that you breached rule 9 and if you do this now and are found to have not acted in the best interest of clients by doing so will have committed an offence under the Bribery Act! The CMCs don't tie you, you do by signing up to their agreement in breach of the rules!
You cannot complain about what you see as an unprofessional process when you appear happy to get involved in it yourself!
Have you reported the CMCs involved; if not, why not?
You are part of the problem!
"The cmc ties us into the ATE provider, ties us to their medical agency and are now trying tie ins with costs companies - and the cmc.s get a kick back from all of them" - this is an admission that you breached rule 9 and if you do this now and are found to have not acted in the best interest of clients by doing so will have committed an offence under the Bribery Act! The CMCs don't tie you, you do by signing up to their agreement in breach of the rules!
You cannot complain about what you see as an unprofessional process when you appear happy to get involved in it yourself!
Have you reported the CMCs involved; if not, why not?
The problem is the cold calling not the referral fees.
The problem Jack Straw was highlighting was his friend being cold called / texted by an accident management company, who had paid an insurer for the details. The friend wasn't injured and didn't want to claim.
Solicitors are not allowed to accept claims referred from anyone who has been cold-called in this way. Why are insurers allowed to sell on details of their customers without the customers' consent? Tighten the rules on this, rather than on referral fees.
Rubbish! The problem is
Rubbish! The problem is referral fees-they have utterly distorted the litigation system (as was predicted), and effectively destroyed the professions integrity (again as was predicted). Spiv culture reigns, and is encouraged.
Solicitor to Referrer: was
Solicitor to Referrer: was this client cold called?
Referrer to Solicitor: no, that couldn't be the case, our instructions to our agents (paid on numbers signed up) say they shouldn't cold call. Oh and the agent told us they didn't do it.
Solicitor to Referrer: thats okay then, I'm sure the purely commercial view that he wants the commission won't have influenced his answer at all-it never did with mortgage brokers, endowment salesmen, sub-prime mortgage package sellers, banks..............
The power to stop this
The power to stop this ridiculous state of affairs rests with the payer not the payee
CMC's make more from a PI claim than any other party apart from the claimant themselves.
If lawyers did not pay CMC's, the number of claimants would not diminish and although there would undoubtedly be an initial dip in new clients for a practice this would increase with some sensible (co-operative) marketing and profit (not profit costs) would increase substantially.
A dodgy argument
I find the argument above that paying referral fees keeps you busy, to be extremely unattractive. One could be a busy burglar, or drug dealer, but that does not make the activity right. Surely, as a profession we should be capable of seeing that the spiv culture of paying bribes to estate agents and dubious CMCs is just plain wrong.
A dodgy Comparison
Comparing the much debated issue of referral fees and whether it keeps you busy to, burglars and drug dealers is a bit deperate and over dramatic. I note however there is much back stabbing amongst peers in all of the above comments which just goes to show and prove there will never be any solidarity or mutual help in this profession. You reap what you so. If lawyers were better managers and businessmen there would never have been that gap in the market filled by Claims Direct and its successors. Anyone would think running a CMC was rocket science!
It will be interesting to see
It will be interesting to see how the Bribery Act affects referrals fees.
Under the Act it is fairly clear that referral fees are a criminal offence. Reasonably corporate hospitality is as far as one can push the limit of legality.
The question is are the vested commercial interests strong enough to risk prosecution?
referral fees
There are insufficient words in the English language to describe the naivety and sheer stupidity of those who really believed that there would not ultimately be destruction of the profession, not to mention its repeated discredit and mutilation by the press as the ultimate price to be paid for referral fees. It is typical of the thinking behind pyramid-selling: make a fast buck quickly, pass the parcel and hope not to get caught when the music stops playing. It is discreditable and should never have been allowed.
The whole point WAS the
The whole point WAS the destruction of the profession. The government of the time did not want an independent legal professio as itset about the demolition of the rights of the people.
To nobodys surprise, this government is no better.
Déjà Vu
http://www.lawgazette.co.uk/news/for-sale-legal-profession-going-cheap
The article or comment above was written in 1987. In relation to referral fees it states "Problems emerge only where the solicitor's independence and integrity, or the client's freedom of choice, are prejudiced as they will be where there is a tie-up which results in the solicitor being in the pocket of the introducer of business."
Not sure if anyone listened in 1987, suspect that the use of referral fees by firms big and small means it will be hard to simply just ban them. Personally the sooner they are banned the better.
It was right in 1987 and it
It was right in 1987 and it still is right.
Referral fees should be banned-but they won't be because the government is controlled by the City, who profit immensely.