Is The PI Referral Fee Ban Working?

                                                                                  

                                                                                

Just over 3 months have elapsed, at the time of writing, since the PI referral fee ban was introduced courtesy of ss56-60 of LASPO 2012.

 It is a matter of great doubt whether anyone reading this article really thought that referral fees would die away entirely when April 1^st came around. PI lawyers and CMC owners are nothing if not inventive and it was never in doubt that some forms of referral fees would continue – albeit that they would be re-branded as ‘recommendation fees’, ‘agency fees’ or some other such title that does not include the word ‘referral’ in it.

Prospective ABS’s were not, we were told, likely to be granted licenses if it appeared that they were solely designed to get round the ban. So presumably the SRA are perfectly happy that those to whom they have granted such licenses are not acting in a manner which would suggest that they were set up with the sole purpose of circumnavigating the ban.

For everyone else, what is the current situation? In the lead up to April 1^st and since then, there have been many pronouncements from CMC’s, in particular, via social media, publicising the fact that they ‘have found a solution to the referral fee ban’. Without going into great detail about the ‘solutions’ that are on offer, what can be said is that some involve quite complex paper trails between the various parties to the ‘solution’  – a mixture  of solicitors, CMC’s, a client and a form of marketing company or some other party. Other ‘solutions’ involve the referrer passing the prospective personal injury client on to the solicitor by way of a ‘hot key’ transfer – with no information being passed on by the referrer to the solicitor directly, presumably in an attempt to avoid falling foul of s56 (5) (b) of LASPO 2012 (referral of prescribed legal business). These are but two of the types of ‘solution’, ‘scheme’ or ‘arrangement’ that have come to the writers attention. There are doubtless a good number of others.

Whether any of these ‘solutions’ will pass muster with the SRA or the MoJ, remains to be seen.

What is apparent is that whilst there was a definite mood of bullishness (‘it will be business as usual’) among some claimant solicitors and CMC’s alike in the run up to the ban, that bullishness has been replaced with a much greater degree of cautiousness . There is a sense that many are waiting to see what the others do before making their own moves (if any) and with good reason.

The SRA published a 31 point set of guidance notes on the 25^th March on its website at: http://www.sra.org.uk/solicitors/code-of-conduct/guidance/guidance/Prohibition-of-referral-fees-in-LASPO-56-60.page

The guidance notes set out some examples of the types of ‘solution’ that may or may not lead to a breach. In the examples contained within the guidance notes, the ‘may’s outnumber the ‘may not’s’ considerably and throughout the notes the SRA’s stance is made consistently clear – any payment made in relation to a personal injury claim will be considered to be a referral fee unless the solicitor can prove otherwise. In other words, if it looks like a referral fee, sounds like a referral fee and smells like a referral fee, the SRA will consider that it is a referral fee and if it comes to the attention of the SRA it will be for the solicitor to prove to the SRA or perhaps more likely, the SDT that it is not a referral fee. It will be a brave solicitor who wants to be one of the test cases to have to argue before the SRA/SDT why he or she believes that his or her particular ‘solution’ does not breach the ban!

To an outsider looking in, it must seem insane that any solicitor worth his or her salt would even consider making a payment for a PI claim under any circumstances, however the referral and payment were packaged or re-branded  given that the burden of proving that the payment is not a breach of s56 weighs so heavily on the solicitor’s shoulders via OFR (Outcomes - Focused Regulation).

The problem for many firms of solicitors is that they have become so wholly reliant on paying referral fees for all, or most, of their PI work that they are not used to obtaining work via any other media and have never before undertaken any other real form of marketing of their own. Perhaps some really did think that, despite the writing having being on the wall from as long ago as since the beginning of 2012 at least, that ‘J day’ as April 1^st became known amongst PI lawyers, was never going to happen. For those solicitors, cutting the umbilical cord of 'paid for' PI  referrals from CMC’s and the like was always going to be extremely difficult and potentially terminal to their businesses. Hence the reason that a number of solicitors seem prepared to take the risk of attempting to see if there is a way round the referral fee ban, even if it is a risk that is fraught with danger.

Those firms that some time ago decided to do away with the referral fee model, re-organised their businesses (including where necessary, downsizing their firms) and started to market for work themselves as opposed to relying on ‘paid for’ referrals, and indeed those who chose never to go down that route at all, must be giving themselves a pat on the back. It will only be a relatively small ‘pat’ – there are still plenty of other challenges ahead given the onerous nature of the other reforms already in place, those due to come in soon and those still to be decided upon, with, amongst the latter group, the raising of the small claims personal injury limit to £5000 or more, the one perhaps giving the most cause for concern for claimant PI lawyers.

Your Prison Cell Awaits....

                                                                             


Occasionally, at the end of a criminal trial, when a prison sentence has been handed down, the Judge will defer the start of the sentence for a couple of weeks to allow the Defendant to get his personal  affairs in order. I remember that happening to a solicitors clerk in a practice not far from where I was brought up in the North West of England who along with others in the practice had been sentenced to a couple of years for 'Green Form' fraud. I recall thinking how awful that must be - being allowed to walk out of the court room to go home, knowing that you had a 2 year sentence waiting to start in 2 weeks time.

It's been a similar situation for RTA lawyers over the past however many months. They have known that a prison sentence awaits them on April 1 2013, but as it all still seemed a life time away, things carried on as normal. Even when it became certain that referral fees were going to be banned - bluster and bravado ( "oh it will be business as usual, ha ha.") More recently the laugh has become a nervous one and then on Monday 19th November, the laughter stopped altogether -the fixed fee under the Portal slashed from £1200.00 to £500.00 (unless the Law Society who are 'raising concerns' can weave some magic - ok, you can all start sniggering again).

Why there isn't even enough left in the pot to pay a dodgy referral fee!

As if that wasn't bad enough, those who suddenly thought that overnight they could become super EL/PL lawyers, woke up to find that that was being dragged into the whole sorry scheme too, albeit at slightly better rates (but not significant enough to get the cheque book out for a down payment on that new Porsche).

It's been interesting, hearing all the news on the grapevine about solicitors and CMC's who have supposedly found unique ways around the referral fee ban with opinions from Rumpole QC confirming that they have a cast iron scheme. Pray, do tell, so we can all have a good laugh. Goodness knows we need one. In any event could Counsel please advise which 'pot of gold' the cast iron 'referral fee by any other name' is going to come from?

I may be mad, but I still believe that this is a time of opportunity for some and by that I don't just mean for the big boys and girls. Firms will have to re-structure, no doubt about that. There will be casualties. CMC's who have nothing to offer other than buying in and selling on claims will disappear, go into PPI or become debt management companies. CMC's that are in reality old fashioned Credit Hire companies by any other name, will still be able to make a living from providing hire facilities (yes I know that there is the OFT thing hovering around, but let's deal with that as/if/when it comes around - we've got enough to deal with at the moment). Solicitors, cosy up to them and network with others. There is nothing wrong with you working in an informal relationship as long as you don't share fees and don't pay referral fees and maintain a professional approach, is there? The old fashioned 'good service' quality might come to the fore in terms of selling yourselves (not literally).

...and start marketing like you never have before - network - think outside the box. On the technical side of things there are legitimate ways to get matters out of the Portal on many claims. Be sharper than the opposition and competitors in the handling of your claims. Do you have a lot of claims that include credit hire charges as part of the Special Damages claim? Are you still allowing most of those claims to stay in the Portal? If so why?

So, PI solicitors, the future is difficult but for those prepared to roll their sleeves up, there is a future. RTA/PI lawyers have proved in the past they are a resilient lot. Now is the time to show that quality again.

If you need some help not just with marketing your firm but with advice on re-structuring and how to move forward in 2013 and beyond please feel free to email me at carl@carlwaring.com Unlike many legal marketing experts, I have the experience not only of 28 years specialising in RTA/PI work, but of having built up my own practice from scratch and turning it into a successful and thriving business. I know how difficult it is sometimes to see the wood from the trees when you are running a practice and I now have the benefit of having had the blinkers taken from me, having sold my practice some years ago.

That prison cell does not have to have your name on it.....

Yawn Yawn. Jackson and all that...

I've been a little quiet recently in terms of tweeting and blogging on LASPO, Jackson and all that. To be honest I am a bit weary of it all...all the speculation and jaw jawing, of listening to possible ways of getting round the ban (not supposed to be looking at ways of doing that are we; thought we were just meant to comply?). Of course we all still await the definitive definition from the SRA as to what consitutes a 'referral fee'.

A formal consultation process conducted by the SRA started on the 23rd October and will end on the 18th December. There is to be an 'SRA Referrals Symposium' (to be held at the Royal Albert Hall?). Code changes are to be approved by the SRA Board on the 23rd January 2013, changes to the Regulatory Framework will be approved by the LSB mid February 2012, final version published 'early March 2013' and Implementation of the ban - April 2013.

Reading about the Consultation on the SRA website is making my contact lensed eyes water, so you can check it out for yourselves at www.sra.org.uk/sra/consultations/referral-fees-2012.page if you like. It might make your eyes water too.

I hear it being said by many, and indeed to avoid being accused of hypocrisy, I have also sounded off to this effect previously, 'how can we possibly plan for the future when nothing is written in stone?'. I still believe that to be true for instance in the case, for example of what the fixed fee under the RTA portal will come down to  (I believe that at the recent MASS conference many delegates were saying that they believed that the fee will not come down to the oft quoted figure of £400, but is more likely to be fixed at double that).

However, the one thing that is certain is that referral fees will be banned, that is that LASPO 2012 as implemented in April 2013 will prohibit the 'payment and receipt of referral fees in personal injury cases'. I do not see that the SRA is going to provide much more in the way of a deeper definition. Indeed it has already said that it does not intend to provide a blue print for firms. It will rely on self-regulation to a great extent and to my mind it will boil down to this - at the moment Mr/Mrs/Ms RTA/PI Solicitor you receive quite a bit/some/an awful lot of your work by paying a referral fee to a CMC/Insurance broker or to some other organisation to receive a personal injury claim - ie you pay £X for a PI or you pay £XXX to receive 20 claims a month or whatever. After the first of April that will not be allowed and you can dress it up in fancy ways, but it will still be banned, and you know that it will be banned, so don't do it. If you do do it, well first of all, remember that you are under a duty to self report breaches of the SRA Code of Conduct. If you don't report yourselves, you might get away with it, or we might catch you - that is a risk that you may or may not wish to take. However you know the Rules and so if you do decide to be naughty, well you will be looking over your shoulder for the rest of your days (or until the ban is relaxed/collapses in farcical fashion or is otherwise done away with - all of which are possible, but not certain). You can wave leading Counsels opinion on some brilliant new scheme that you have come up with as a way of getting round the ban, at us, but ultimately if it involves making a payment for a PI claim, it is banned. End of.

So there you have it. What you can do is go out and market properly and attract clients that way, but you'd better get going seriously if you haven't started already - and don't expect those 100 guaranteed new cases per month that you are getting at the moment by paying XYZ CMC Ltd £75,000 a month - no, no, no, that is not going to happen, certainly not in the near term (or to be honest in the long term). Alternatively you can form an ABS - but that is a separate issue altogether and provides enough material for 20 more blogs.

Anyway, I have just heard the theme tune to 'I'm a Celebrity, Get Me Out of Here' chiming up, so time to go and watch Nadine Dorries getting bitten by some more rats or submerged in a bath of maggots. Maybe ITV could try an alternative theme "I'm a PI Claimant Solicitor - Get Me Out of Here." At £40,000's worth of appearance money - now, there's a thought. That would buy an awful lot of claims (until 1st April 2013)!

As ever all of these off the wall views are my own in their entirety.

The Musings of a Grumpy Old Git

I'm feeling grumpy today. I have been in a good mood all day so not quite sure what has turned me sour. Ok well actually I do. Having been  beavering away all day, I decided to have a break late afternoon and turned to the excellent Legal Futures website. Apparently there has been some report or other carried out by the delightfully named 'Espirito Santo Investment Bank' which says (I haven't read the report - I can rely on Neil Rose and his team to tell me all I need to know);

• Numerous 'external investors' will appear on the scene once the 'floodgates of change' hit the PI market next year
• There will be just five or six claimant firms likely to dominate
• Lots of insurers fancy becoming ABS's (I'll bet they do!)
• Apparently PI Legal services will become - wait for this - you'll enjoy this piece of plain English - 'part of a more integrated supply chain..Service providers will increasingly include multi disciplinary tie-ups which offer bundled services. Size will be critical'. Really - bigger is better and all that?
• Most CMC's will disappear - if they are merely ticket touts ie selling on PI claims for more than they paid for them,then good. 
• Their (the CMC's) cases will be picked up by solicitors who have the funds (because they aren't paying referral fees anymore) and the time (because they've no work to do) and they will have suddenly picked up the skills (that they haven't had for all those years they were paying referral fees) and the inclination to go out and market for themselves and pick up lots of new PI cases. That'll be alright then - except wait - I thought the 'five or six' 'size is critical' outfits were going to hoover up all the new claims - so there aren't actually going to be any for the small to medium sized firms after all? Ah, here we go...
• As a result of the referral fee ban, claimant firms will either look to expand...or ...erm... they won't - in which latter case they will exit the market..

I started to get bored after that. Apparently there are going to be a lot more mergers and basically if you don't merge or form an ABS or get loads of funds invested in your firm to expand then you might as well go and do some conveyancing or become a shipping lawyer or something of that nature. Oh and if you do form an ABS, merge or take on 100 new staff and act the big law firm...don't forget that the only thing that has been decided is that referral fees for PI work are banned (but not yet properly defined blah blah). So you might in fact be spending a lot of money on ABS, merger, expansion and come April you may well find that you can't make RTA/PI pay!

The SRA and The Hot Potato

                                                                                 

I went to a talk given by a chap from the SRA last week about the ban on Referral Fees in Personal Injury cases and how this will be policed by the SRA in respect of solicitors (the Claims Management Regulator will look after CMC's, I believe). I hoped to glean some nuggets about what will and what won't be allowed. I came away scratching my head, it has to be said. In essence I knew nothing more when I came away from the talk, than when I went in.

I'm not having a go at the SRA man personally. As I have argued before, the SRA have been given a real hot potato to deal with here. An organisation that is already stretched in terms of work and resources now finds itself landed with the job that no-one wanted to do and already finite resources having to stretch even further in order to deal with it all. Add to that that the ban will come into force on the 1st April 2013 and with a formal 12 week consultation period yet to get under way following the responses to a recent discussion paper on the ban, and we will be left with a pitifully short period of time for all this to be in place for the due date.

As the SRA are not in favour of 'rules' as such then the mandatory outcomes will be amended with a few of those 'illustrative indicative behaviours' added and that will be it.

As the SRA has finite resources at it's disposal it seems certain that those firms which presently rely heavily on paying referral fees for work, will be closely looked at to see how they intend to move forward post April 2013.

Perhaps the SRA are being quite cute - cuter than we are perhaps giving them credit for. They know that RTA/PI lawyers are pretty wily characters, who given a rule will find a legitimate way of circumventing that rule. If the solicitor has no rule to 'get round' then he/she is left with taking a chance should they decide to try paying a 'referral fee' that is not a 'referral fee' - and being left with the prospect of being made an example of by the SRA, should it transpire that the 'referral fee' that was not intended to be a 'referral fee' ends up being one after all!

Ok, I hope that that clears everything up!

Referral Fee Ban Part II

When I set up my own RTA/PI solicitors practice back in 1994 there were no such things as referral fees. To be honest I am probably wearing 'rose tinted' spectacles a little in saying that - I am sure they did exist but if they did, they were pretty much underground and passed by way of brown paper envelopes.

I was indeed fortunate to set up the practice at a time when it was quite a simple task - PI Insurance was relatively easy to come by for Sole Practitioners and with a rented office, a couple of desks and chairs, a computer, a printer, and some stationery, away I went (with no little help from Mrs Spin King I must add). No such thing as COLP's and COFA's or indeed ABS's -the only initials that you needed to know were IKEA - so that you could go and buy a nice bit of Scandianvian office furniture!

What was also needed was a bit of confidence to walk into insurance brokers, legal expense companies and local car body repairers and persuade them to refer to the new firm their customers in the event of their suffering a non fault accident - and then, (drum roll) the main ingredient from then on was 'To Provide a Top Class Service'!

Ah, can we remember those days when referrers wanted nothing more from a PI solicitor than for them to provide a good service to their clients, which in turn would result in a satisfied customer for the referrer and the likelihood or repeat business and further business from recommendations? Isn't that just good business practice and how businesses are meant to become successful?

As our good name grew, so did our case load. Happy days. Then referral fees started to surface. I am not sure whether this was solicitor led or referrer led to be honest. I do recall that certain solicitors practices seemed to be at the forefront of fee paying - usually wrapped up as some kind of marketing fee, for it was to be a few years before referral fees were legitimised. Finally they were officially recognised and the 'claims industry' went into overdrive. There have been some horrible excesses - with huge amounts of cash changing hands and both solicitors and claims management companies trying to outbid their rivals - all simply for the passing on of a PI, with no other service included, other than that of farming claims.

So, and regular readers of this blog might be surprised to read this, I am a supporter of the referral fee ban. Indeed I would have preferred that the original plans to criminalise the passing of referral fees for PI's had been pursued. Properly done that should have seen an end to the passing of money for the referral of claims. If all the governments efforts had been focused on passing well drafted legislation, with proper enforcement to back it up, that would have gone a long way to seeing an end to the practice and would have obviated the need for much of the further reform proposed, which in turn would have maintained a balance between genuine claimants with claims to pursue and the insurers on the other side. The decent claims management companies who have other services to provide, such as hire and repair, would have had to re-adjust but with proper planning would have survived and indeed prospered, and for solicitors they would have had to learn how to market themselves, as the market opened up with the demise of many of those who simply acted as PI middle men.

However, instead the legislature have opted against criminalisation and as stated in my last blog post they have passed the policing duties over to the SRA who have now been tasked with coming up with a strategy for ensuring that the ban is enforced. We have yet to see how well that policing is enforced. I do fear that there are those claims companies and solicitors who will already be thinking of ways around the ban, rather than accepting it and looking to change their models. It is, though, to be hoped that it is rigorously enforced and that those who flout the law and are caught out, are severely dealt with. Then, there is just a possibility  that there will be a return to the concept of those  that provide the best service prospering in a difficult market, rather than those that pay the most for claims or that offer cash or other incentives to claimants, doing so.