Law Society- Legal Services Board 'mistaken ' for not recommending ban on referral fees…

03 Jun, 2011

The Law Society today expressed its disappointment and regret that the Legal Services Board (LSB) had made the wrong decision and thus failed to prohibit referral fees.

The Society criticised a report by the LSB, which it says fails to reflect public, judicial and professional concern about referral fees and fails the public interest.

Referral fees, often costing several hundred pounds, are demanded by insurers, estate agents, claims handlers and others from solicitors in return for work.

The Law Society has been calling for the prohibition of such fees because they add no value to the system and line the pockets of intermediaries that simply make money, ultimately paid by consumers, out of directing consumers to solicitors. In the case of estate agents and insurers, solicitors often have no choice but to pay for the referral.

Law Society president Linda Lee said the Law Society is critical of the LSB for not proposing a prohibition on referral fees, but instead offering complex guidance to regulators. “The LSB has picked the wrong target by taking steps that will increase the burden and cost of regulation.”

“We asked the LSB to look into the issue and emphasised that a prohibition was needed to reduce pressure on legal costs and to avoid cases being bought and sold because we consider this practice not to be in the public interest whatever economic studies may say .”

“Instead, the LSB has chosen a path which will involve yet more complex regulation of solicitors rather than tackling the middleman charging referral fees. This is a mistaken decision by the LSB, which has failed to act in the public interest. Its decision will only help those who wish to make money out of consumers but who add no value.”

“At a time when the Government is seeking to reduce the costs of litigation and the legal process, it is surprising that this is being frustrated by the LSB.

“The LSB cannot see that it is simply wrong for cases to be bought and sold in this way. This fact was recognised both by Lord Justice Jackson and by Lord Young in their reports. The Law Society remains severely critical of the evidence that the LSB has relied upon, much of which was based upon the views of those who demand referral fees and so had a vested interest in the outcome.”

“We are also disappointed that, even if it thought that it was wrong to prohibit payment of referral fees altogether, the LSB did not take up the Law Society’s view that those who insist on payment of referral fees ought to be regulated.

It is impossible for solicitors to oversee the way in which people over whom they have no control carry out their responsibilities.”

The Law Society is writing to Justice Secretary Kenneth Clarke urging him to address the issue.

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