ONE of Liverpool’s leading solicitors has spoken our against problems regulating so-called “claims farmers” and the solicitors who take unscrupulous advantage of them, despite a change in law to make investigation into them easier.
Professor Rex Makin says that despite the Compensation Act coming into force last year, the regulatory body investigating breaches of the act has insufficient tools to investigate firms.
Last year the Compensation Act came into force to regulate claims management
firms colloquially known as claims farmers.
Prof Makin told LDP Legal: “These firms exist to refer claims to solicitors in return for a referral fee.
“As a result of this if you have an accident your claim may be dealt with as a commodity with
solicitors buying claims at £500 to £700 a time.
“The Act provided for the registration of these claims management companies and there are
regulations which are known as a referral fee, which some people unkindly call backhanders, which the firm receive from solicitors in exchange.
“Now the former head of the Government Claims Management Regulations Unit has warned that many personal injury referral deals breach regulations and these are the fault of solicitors rather than claims management companies.
“He said the Solicitors Regulation Authority is failing to tackle effectively solicitors who break the rules.”
The current Claims Management Regulator last week suspended 52 claims handling businesses who failed to respond to its authorisation review at the end of February.
They examined 149 referral arrangements in place between solicitors and claims handlers at the end of last year.
Prof Makin explained that solicitors are obliged, following the introduction of regulation for claims management companies to comply with conduct rules on referral fees and are barred from taking referrals from unauthorised firms or individuals.
Despite this the SRA found that in 48% of the arrangements examined solicitors had failed to obtain an undertaking from introducers to comply with conduct codes while 46% involved "failed by firms to ensure introducers provided clients with all relevant information".
Prof Makin said: “The regulator said the SRA needs to do more and it was difficult to conceive how claims resulting from large scale fraudulent accidents can be handled by solicitors in a way which means the solicitors conduct rules have been complied with.
“The most important thing he said was that the SRA does not have the right tools to combat malpractice effectively because it has to seek lengthy and costly disciplinary sanctions before a tribunal which severely restricts enforcement action.
“What is more ominous is that solicitors involved in malpractice know this and act accordingly although the vast majority of firms had nothing to do with either inappropriately gathered claims or ones that may be fraudulent in origin.
“In April the current Claims Management Regulator suspended 52 claims handling businesses that failed to respond to its authorisation review and added that while many of them may have ceased trading, those that were trying to evade regulation would have "no place to hide".
“The days when there are solicitors on your doorstep have evaporated and with the abolition of advertising the legal profession has made itself a target for those who would jump on the bandwagon of compensation.
“Once the genie is out of the bottle it is difficult to put it back.”