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Referral Fees - The Case for the Defence

So the Government wants to ban referral fees. We have all heard about this and Jack Straw's campaign (don't worry, I shall get to him later), but how exactly are they going to do this - and when?

Well the answer is, I am not sure that they can. You see, the Government has a large number of hurdles to jump and proberbial holes to plug before they can get anywhere near to legislation to ban them:

  1. First there is Europe. Referral fees are permitted in Europe so banning them here is going to be difficult - there may be anti-competitive claims arising.

  2. The Legal Services Board carried out a study of them and concluded that a ban wouldn't work so it was better to legislate and control them. There was a call for greater transparency rather than sweeping them under the carpet. Better to have the referrers inside the tent er, you know - urinating out rather than outside the tent .... (you get my drift).

  3. Alternative Business Structures are soon to be permitted - which means a large claims management company and a solicitor could join forces. Business as usual.

  4. Referrers could be taken on as employees of solicitor firms on a low basic wage with a bonus for the number of leads generated. Would this be allowed?

  5. Solicitors are allowed to sell cases to other solicitors (and always have been allowed to do this). Would this practice be banned? What about file transfers with WIP being paid? Is that ok?

  6. The proposal is to ban referrals for personal injury claims only - not conveyancing or any other legal matter. Surely this is inconsistent and would be challenged.

  7. A lot of solicitors receive work for 'free' in return for doing other things. For example, some firms get PI claims from insurers but then have to handle their uninsured loss recovery work for nothing. This is a referral fee isn't it? Is this going to be outlawed?

  8. What about a free referral but on condition you give a medical agency 10 medical instructions? Is that a referral fee? Is the Government going to ban freedom of choice and legitimate business arrangements?

  9. Here's another one: 10 firms get together and form a company which advertises for PI claims. It is run by 5 non-lawyers. They all fund this marketing company based on the number of leads they take on. Is this arrangement a referral fee? Is the Government going to ban this? What if the company isn't a company but a partnership - or a non-profit making organisation. Does the membership of that organisation or slots bought make the arrangement against the rules?

You see, I have only been writing this for about 10 minutes and already I have thought of several serious problems. Give me a few days (and the PI industry a month or two) and there will 100 different options on the list. The problem the Government has is that no one can say for sure what a referral fee is - and if you can't properly and fully define it then you can't ban it.

And so to Jack Straw. Has he really though this through? He is up in arms about referrals and claims management companies. He is incensed that insurers have sold injured people's data to a claims company. The thing is, this goes on in all industries. Loads of companies sell personal details to other companies - which is why you no doubt have had several calls about double glazing, kitchens etc. Are they allowed to do this? Well yes because we have consented to it. Somewhere we have bought something where there is a clause saying the seller can share the data. Can this be banned? I suppose so but it has to be industry wide - it isn't just Personal Injury's dirty little secret - it is the western worlds.

Mr Straw is also saying the practice of selling PI claims should be criminalised. Well why didn't he criminalise it or ban it when he was the Minister of Justice? Well the answer is, he looked at banning referrers but then decided against it.  Instead, he oversaw the cleaning up of the claims management companies by requiring their registration. Why the change of heart? I have no idea.

And you see, he might just be shooting the Labour Party in the foot. Would you believe that in 2009, over 60% of Labour Party funding came from Trade Unions? Where do the Unions get their money from - well membership fees but a large part of their income comes from notional After the Event Insurance policies (soon to be banned under Jackson) and referral fees. Supporting a ban of both is going to cut the amount of money Trade Unions have available and so cut the Labour Party's funding. It is also going to annoy the Trade Union leaders somewhat.

Maybe, the Labour party has decided they don't need the unions any more. Mr Straw is playing a dangerous game me thinks.

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