Short of passing them through body scanners and asking their mother’s maiden name, it is difficult to see how government checks on claims management companies could have been more intrusive.
The Ministry of Justice has always nominally regulated CMCs but until now has been shy to bare its teeth. A letter sent out by the MoJ this summer suggests that the tide has turned.
It demands details of referral payments received pre- and post-1 April, when the referral fee ban was introduced for personal injury. The ministry also wants details of panels of solicitors, proof of changes to the business model since April, copies of invoices, a breakdown of costs and examples of marketing for law firms that continue to pay fees. Officials even want to see a copy of any damages based agreements entered into with clients.
The referral fee ban is patently not working – at least not in the way the government naively imagined it would.
The very existence of CMCs depends on payments from law firms. The idea they would slope quietly off once one revenue source was closed was fanciful, as was the idea that would attract clients from thin air. Referral fees had been lawful for nine years, and it is hard simply to close down an industry that has had so long to flourish.
In place of the fees, we now have marketing schemes, advertising pools, panels and member firms. All the same companies profiting from the same firms, but with a different tag.
Potential ban-dodgers could be safe in the knowledge that the Solicitors Regulation Authority had neither the inclination nor the resources to go after them. Life would go on as normal (albeit with dramatically reduced fixed fees).
That option is now closed. Law firms that either turned a blind eye to compliance or thought they were untouchable after April have to think again.
If it were my firm, I’d be demanding to know what information a claims management company has given about me. But, more importantly, I’d be reading through the small print of the ban and consulting on whether I’m compliant.
The government’s aim is quite clear: it has created a ban but gained no traction from it. Now, perhaps with the insurance lobby agitating, it wants to implement it. You can guarantee it will be passing information onto the SRA and leaning on it to act.
The trail will inevitably lead to PI firms.