Regulator pledges to review rules on fees paid by law firms.
The controversy surrounding referral fees deepened this week with the revelation that one in three solicitors fails to inform a client when it has paid to be handed their case, according to figures from the industry’s regulator.
The Solicitors’ Regulation Authority (SRA) said it would review the rules – and could consider banning solicitors from paying the fees, which add up to £50 to every motor policy, experts say.
The authority said 31.5% of solicitor firms were failing to meet their transparency requirements, and 48% were failing to ensure the client was provided with relevant information about the referral.
The SRA board will review the rules surrounding the fees when it meets in December. Antony Townsend, its chief executive, said: “This trend is disappointing especially given our efforts to increase awareness of the rules. It is hard to believe that such high levels of non-compliance are entirely caused by ignorance.
“I am also concerned that the current economic climate might increase the temptation not to comply. The SRA board will consider the issue again.”
Leading claims directors said the damning figures showed again that referral fees were not in a client’s best interests and should be abandoned. David Williams, AXA’s director of claims, said some insurers profited from referral fees, but the industry should still drop the practice.
“If the SRA put a stop to referral fees, it would be like Christmas had come early – I would love it,” he said.
“But I don’t think it will; too many solicitors’ business models are based around them.”
Williams said the fees meant claimants were sent to the solicitors who could pay the most, rather than to those that could offer the best service. This resulted in delays and unnecessary costs.
John Spencer, chairman of the Motor Accident Solicitors Society, said no one in his society liked the fees. “However, there is a feeling ... that they represent a key element in the personal injury market.”
The government backed down from taking action on referral fees earlier this year, after lobbying from unions, which receive many fees resulting from non-motor claims.