Regulation of claims farmers will benefit both consumers and confidence in the legal system. But, warns Janet Paraskeva, the new regulatory body must be able to enforce compliance effectively


After many years of lobbying by the Law Society, the government has at last acted to bring about regulation of claims farmers. The Lord Chancellor announced last week that in a White Paper to be published later this year, the government will propose the establishment of a new regulator to regulate the work of claims managers. This new organisation would, he said, be supervised by the legal services board which will be established as part of the Clementi reforms of legal services.


The Law Society has been asking the government for years to deal with the problems caused to consumers by unqualified advisers, such as claims managers and will writers. So we were extremely pleased to see that our concerns about the unregulated sector had been taken on board.


The unqualified sector has failed consumers. This matters to solicitors because the activities of unqualified legal advisers are eroding consumers’ confidence in legal services as a whole, working against the goal of a well-functioning legal market and fuelling concerns about a compensation culture.


We have been particularly concerned about the approach taken by claim farmers because of the damaging effect they have in encouraging the myth of a compensation culture. One of the principal causes of this myth is the misleading and aggressive marketing that claims managers often use. As Lord Falconer said in his speech to the Health and Safety Executive, advertising that raises false hopes of unrealistic or unachievable personal injury compensation awards is ‘distasteful and pernicious’ – and it encourages false expectations. The individuals who take such an unsavoury approach will only be deterred by tough penalties.


These distasteful activities have damaged the confidence of consumers in the legal services market. There are any number of pitfalls of which consumers need to be aware. Unqualified and unregulated advisers often try to persuade consumers to enter exploitative contingency fee arrangements or give claimants unrealistic expectations about the amount of compensation they might receive. They may mis-sell insurance and loan products or pressurise claimants to settle their claims when this is not in their best interests. They may even prejudice meritorious claims with unhelpful advocacy, and give incompetent – if not negligent – advice.


Worst of all, consumers have no protection against the activities of these advisers and no comeback when things go wrong. There is no compensation scheme or complaints mechanism and consumers who have suffered at the hands of claims farmers are often simply left high and dry. We hope regulation will put an end to the poor practice and lack of redress that currently exists in the claims management sector.


Any new scheme must be capable of regulating effectively. The Lord Chancellor said last week that the new frontline regulator could well be based on the Claims Standards Council (CSC), established last year as a voluntary trade body. But he also emphasised that the CSC would have to make sufficient progress and be judged fit for purpose by the legal services board.


At present, despite the efforts of those running the council, only a small number of claims companies have joined. Perhaps the government’s decision on regulation will persuade more to join. The CSC would need to develop in a way that achieves credibility and the backing of most claims managers – and in a way that would engender public confidence. Any new body would have to be capable of undertaking basic registration, compliance and enforcement activity and monitoring.


Careful consideration would also need to be given to the nature of the standards set by any new regulatory body and whether it could provide – or monitor the provision of – adequate training and examination. These are not insignificant hurdles and proper attention must be given to them.


Alongside all of this, it must not be forgotten that solicitors have a role here too. Many claims farmers would not exist if there were not solicitors who were prepared to accept work put their way by an unqualified claims manager. The Claims Standards Council has drafted a consumer code, and the Law Society has said that if that code is approved by the Office of Fair Trading, it will consider requiring solicitors only to deal with claims managers who have adopted that code.


The case for introducing such a rule would be stronger if the government ensured that settlement of claims reached without independent legal advice did not bind the claimant.


Of course, given the complexity of legal issues, consumers’ best option is always to seek advice, from the outset, from solicitors – who are properly qualified and fully regulated. But that does not mean we can ignore claims farmers, or hope they will go away. Where practitioners interact with them, they need to take care to do so in a way that does not cause a breach of the rules of professional conduct, particularly those relating to referral fees. As a regulator acting in the public interest, the Law Society will continue to press for proper and effective regulation.


As the Department for Constitutional Affairs minister David Lammy said last week in the House of Commons, ‘the sharp and wicked practices in the claims management sector must stop’.


I could not have put it better myself. I hope the decision to regulate will ensure that they do.


Janet Paraskeva is chief executive of the Law Society