Referral Fee Ban discussions rumble on.

This week we have seen publication of the Analysis of Responses to the Discussion Paper on the proposed ban on referral fees. This is the response to the Discussion Paper of course, and does not form part of the actual Consultation Process, which is about to begin.

Once responses to the actual Consultation Paper have been received, there will naturally be the publication of the Responses to the Consultation Paper. This will presumably be followed by the publication of the SRA’s Strategy, based no doubt on the Consultation Paper response.

Of course if there are any changes to the SRA’s Regulatory Framework as result of their response to the Consultation, these will of course have to be approved by the LSB prior to implementation. And of course all this will all take place in a timely manner before 1st April 2013, in plenty of time for law firms, CMC’s, Insurers etc to make the necessary amendments to their business models to ensure full compliance with the SRA’s response and guidance.

Now that’s clear, what did the Analysis of Responses to the Discussion Paper actually reveal?

Well lets start with the preamble in which the SRA states that they appreciate it was difficult to managing the implementation of the Referral Fee Ban last time around, but “hopes” that it will be easier this time around if firms manage their businesses in a way which demonstrates they comply with the law.

We then have the question of multiple regulators being responsible for policing the implementation of the ban by their members. In response to this question the SRA says that “so far as possible they will ensure that the ban is enforced consistently, across sectors”

In terms of policing the ban themselves, the SRA’s Outcomes Focused approach will mean that “they hope that law firms will manage their businesses in a way which is compliant with the law”, to the extent that they will not have to deploy resource to the area. So the Discussion Paper has so far drawn two responses from the SRA saying that they hope firms will take it upon themselves to comply with the ban. Fair enough – but what about Clarity as to what arrangements will be compliant?

Well again the response reminds us that the SRA’s Outcomes Focused regulation doesn’t require prescriptive rules – so firms are back again to complying themselves. But in terms of guidance, the SRA say that where necessary they will “seek” to develop case studies and learning tools to assist compliance. That’s helpful – so what about the question of Joint Marketing Schemes. Well, the SRA and the Government are particularly aware of the need to ensure that firms only enter into joint marketing arrangements which operate within the confines of LASPO. We know that already don’t we? The onus will therefore be on firms to ensure that payments for marketing and advertising remain reasonable. It may be that if attempts are made to hide fees in complex or hidden transactions then the SRA may have to ask the LSB to recommend that fees paid for marketing or advertising are set by the Lord Chancellor.

So perhaps the Lord Chancellor is going to be asked to decide what fees Google should charge for its Pay per Click advertising services. If a firm spends £25 a click with Google and ends up paying for 10 clicks before getting an enquiry and then paying for another 10 clicks before converting the second enquiry into a claim – will the fact that they have spent £500 on PPC with Google be deemed too high? One wonders.

The Analysis of Responses then turns to the risk of the closure of smaller firms. On this point the SRA notes that it’s not for them to take a view on this, but on the subject of ABS’s the SRA will not oppose applications for ABS status as referrals would be internal in this case and the ABS does not consider that to be a way to avoid the ban.

So – a law firm can merge with a CMC – the CMC can continue to market for claims, but because the process is internal it isn’t considered a way to avoid the ban. But all other non ABS law firms are being advised that they should comply with law and the LASPO Act which specifically seeks to prevent referrals.

So, in summary the SRA’s response to the Analysis of the Discussion Paper Responses reveals that the SRA feels that their Outcomes Focused approach to regulation means that law firms should make sure their arrangements do not constitute referrals. Unless they are ABS’s. If they are involved in marketing schemes the fees must be “reasonable” – which are not defined and the SRA doesn’t think that it should be prescribing guidelines because that’s not what its there to do.

We will await the formal Consultation Process in due course.

On September 17th, 2012, posted in: Latest News, Referral Fee Ban by

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