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Scary Referral Fee Ban

It's Halloween.

Last year my teenage daughter forgot it was the 31st of October and answered the front door in the dark to be confronted by some pretty scary masks - she let out an ear piercing scream and slammed our front door in some poor kids faces – oh dear, we seemed to get dirty looks from our neighbours for months afterwards!

Yes - as we all know, a lot of things can look a much scarier than they really are at this time of year…...and I am beginning to think that the Government’s ban on referral fees may be one of them.

It's obvious of course, that the Government never really believed it could ban referral fees. It would loved to have done so, but could see it was impractical. Then Jack Straw embarrassed the Government by proposing it himself. He had just discovered that this sort of thing was going on, despite himself having been Justice Minister for more years than anyone could remember. The Government couldn't afford to have the Opposition out do it on this issue, and promised it would introduce a ban (although even then, it acknowledged the difficulties by refusing to give any time limit for doing so).

The latest Government amendment may in fact bring us some warm cheer as the nights get colder. Ken Clarke’s latest amendment proposes that the ban on referral fees will not apply if the payment is made "as consideration for the provision of services”. After a moment of extreme puzzlement, things are beginning to become clearer.

The Government is not really planning to prevent Claims Management Companies charging for their services. This of course would have effectively put CMC’s out of business (or just forced them to form ABSs!) which would have been odd since it was the Government which was regulated them. The proposal is now that they can legally charge as long as they can show they are charging for a service which they have carried out. They will not normally struggle to show this, particularly since they often complete the Claim Notification Form for motor claims, or at least provide all of the information necessary to do so. They also tend to meet clients, explain documentation, get CFAs signed etc. etc. etc.

What will be banned is a payment to anyone who simply supplies a name and address in return for a fee - what might be termed a "pure referral”. This would cover motor insurers, the police and perhaps some body shops and vehicle recovery companies. They don't perform any work for solicitors - they just receive payment for knowing who has had an accident.

The larger the organisation (motor insurers and the police) the harder it will be for them to sidestep such a ban but clearly the net effect of the Government's current proposal is that if you carry out the normal work of a Claims Management Company then you are unlikely to be affected. Some people may think that legislation which prevented the large motor insurers from receiving a fee for "3rd Party Capture” might be the best Christmas present they could hope to receive.

We will have to wait and see. But as I said, at this time of year, things can look much scarier than they really are.

Simon Pinner

Director of Box Legal Limited

Box Legal Limited: After the Event Insurance Providers
  | | 0870 766 9997



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