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Referral fee ban welcomed

12 September 2011

We welcome today’s announcement that the government plans to ban the payment of referral fees in personal injury (PI) litigation. A specialist Associate in Willans’ personal injury team has been a long-time crusader against what he has described as a ‘dirty practice’.

They have said today:“I am delighted to hear that the government is putting a stop to referral fees in PI cases. The ambulance-chasing industry has caused monstrous damage to the reputation of personal injury lawyers and to the legal profession in general and a ban is long overdue.

“A referral fee is essentially money paid to buy claims. The fees are paid either to an insurance company or to a so-called ‘claims farmer’.  These are firms which trawl for potential accident claims using methods such as unsolicited text messages, telephone prospecting, cold-calling at the door or displays in shopping centres.

“Even though the buying of clients is ethically wrong for a profession and goes against our traditional standards, insurers, claims management companies and motoring organisations are selling their injured clients to lawyers at a figure estimated at somewhere around £600-£700 per case.

“This is big business, not just the odd case. We are talking about major insurers running online auctions, selling claims by region. For example, a few years ago, £3 million a year was about the going rate to buy up all the referrals from any one region in England and Wales.

“One of the largest PI law firms in the country was reported as buying 50,000 cases a year. A firm buying this amount of business would be spending a staggering £32.5 million each year.”

“This practice is bad for clients. In an average road accident case claim, once you deduct the cost of buying the case, the fee the lawyer earns is cut to the bone. In most cases it is simply not possible for a qualified lawyer to properly run such a case and make a profit.

“Either he will cut corners or, more likely the case that the client thinks is being handled by a lawyer is in fact being run by an unqualified person relying upon a computer system to tell him what to do. Therefore it is the client who pays in the form of a seriously diminished level of service.”

The Law Society has welcomed today’s ban but has expressed disappointment that it is not being extended more widely, for example into the area of conveyancing. The Law Society will be pressing the Government to include a general prohibition on referral fees throughout the legal sector. Referral fees, they state, are not in the public interest.

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Nick Cox LLB (Hons)
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