In April this year the government introduced a referral fee ban aimed at stopping claims management companies (CMCs) drumming up claims and selling them on to solicitors. This practice has raised concerns in a number of respects – widespread encouragement to bring claims and expand the feared ‘compensation culture’, individuals being cold called and pressured into claims, the impact on legal costs as firms buying work need to allow for the cost of doing so, work being done by non lawyers, standards of work, law firms being unable to compete in terms of marketing spend and a lack of public awareness of the difference between claims management companies and specialist solicitors.
The government revealed today that the Claims Management Regulation Unit, managed by the Ministry of Justice, has visited more than 450 companies across England and Wales since the ban came into force on 1 April. More than 140 CMCs are being asked to prove they have not breached the referral fee ban since April and some have been issued with enforcement notices.
Following the unit’s intervention, 13 CMCs have ceased operating in the personal injury sector due to breaches of the ban and four new ventures were prevented from trading. The report also shows that the number of CMCs registered to handle personal injury claims fell from 2,435 in March 2012 to 1,700 in June 2013.
Philippa Luscombe, head of the personal injury team at Penningtons Solicitors LLP, said: “We were very pleased to see the regulation of this industry come into effect. For a number of years, aspects of the personal injury industry have generated a bad reputation for personal injury claimants and their lawyers with the assumption of a compensation culture and frivolous claims, combined with an increase in costs. The fact that the CMCs are being restricted in how they work, and reducing in numbers, can only be good news for claimants and specialist injury solicitors in terms of removing the middle men. It is important that specialist solicitors now go out and promote the importance of specialist advice and the benefits of going direct to law firms.”