Warning notice

Payment Protection Insurance (PPI) claims

Issued on 29 August 2017 | Updated 20 June 2018

Status

While this document does not form part of the SRA Handbook, the SRA may have regard to it when exercising its regulatory functions.

This warning notice has been updated to reflect recent legislative changes and to remind regulated firms and individuals of their obligations.

Who is this warning notice relevant to?

This warning notice is relevant to all those we regulate acting in claims for mis-sold payment protection insurance (PPI).

Our concerns

Following our previously issued guidance and engagement with Government departments, lenders and others involved in the handling of PPI, we are concerned that firms are failing in their duties to act in accordance with the Principles and Outcomes of the Code by:

  • acting in matters without first investigating whether there is a valid claim
  • making claims without knowledge of the policyholder/consumer
  • failing to properly identify clients and confirm client instructions
  • submitting false claims in the hope of a settlement without further investigation by the defendant
  • charging unreasonable costs for a limited amount of work contrary to their fiduciary and regulatory duties

Firms who conduct cases which demonstrate one or more of these features may face regulatory action for breach of our Principles. Further this may give us reason to suspect dishonesty by their principals or staff.

Our expectations

We expect that all those regulated by us comply with the Principles and Outcomes of the SRA Handbook 2011. That law firms and solicitors do not conduct fraudulent or questionable cases, and that all costs charged to a client are explained, agreed and set at a reasonable rate.

Previously issued guidance relating to PPI claims is still relevant and should be read alongside this notice.

The SRA Principles

Principle 1: Uphold the rule of law and the proper administration of justice.
You have obligations not only to clients but also to the court and to third parties with whom you have dealings on your clients' behalf (Part 1 - SRA Principles para 2.5).

Principle 2: Act with integrity.
Personal integrity is central to your role as the client's trusted adviser and should characterise all your professional dealings with clients, the court, other lawyers and the public (Part 1 - SRA Principles para 2.6).

Principle 4: You must act in the best interests of each client.
You should always act in good faith and do your best for each of your clients (Part 1 –SRA Principles para 2.8).

Principle 5: You must provide a proper standard of service to your clients.
You must provide a proper standard of service to your clients. You should provide a proper standard of client care and work. This would include exercising competence, skill and diligence, and taking into account the individual needs and circumstances of each client (Part 1 - SRA Principles para 2.9).

Principle 6: You must behave in a way that maintains the trust the public places in you and in the provision of legal services.
Members of the public should be able to place their trust in you. Any behaviour either within or outside your professional practice which undermines this trust damages not only you, but also the reputation of the legal profession and its ability to serve society SRA Principles para 2.11).

SRA Code of Conduct 2011 mandatory outcomes

You should have regard to the specific outcomes under the SRA Code of Conduct 2011, in particular those highlighted below.

O(1.1) you treat your clients fairly

O(1.6) you only enter into fee agreements with your clients that are legal, and which you consider are suitable for the client's needs and take account of the client's best interests

O(1.12) clients are in a position to make informed decisions about the services they need, how their matter will be handled and the options available to them

O(11.1) you do not take unfair advantage of third parties

Client interests and charges

You should always have regard to the SRA’s Principles and Outcomes of the Code. You should make sure that you act in your client’s best interests and with integrity, treat your clients fairly and uphold the rule of law.

Your retainer is with your client and you are responsible to your client both under the law and our regulatory requirements. To ensure that you can act in your clients’ interests and deliver the required quality of service you should have clear instructions from your client and an agreed course of action. Your client should have all the necessary information to make informed decisions on how their matter should be dealt with. Unless you have regular contact with your client, you will be at risk of failing to achieve the required outcomes.

Unless instructions are confirmed with the client at each stage of the retainer, throughout the life cycle of a case including whether to accept an offer to settle a claim, you will be at risk of committing serious misconduct.

When agreeing your fees with a client you should make sure they are fair and reasonable (Solicitors (Non- Contentious Business) Remuneration Order 2009 Article 3) having regard to all the circumstances of the case.

Since issuing our previous notice the Financial Guidance and Claims Act 2018 (“the Act”) received royal assent on 10 May 2018. The Act prohibits fees of more than 20 percent, excluding VAT, being charged for PPI claims and prevents you from charging a client where no award has been recovered.

The cap is effective from 10 July 2018.

We expect you to have informed your clients about the fee cap and its effect.

Read further information about the effect of fee cap and our expectations. The information is consistent with guidance that has been produced by the Claims Management Regulation Unit.

Although legislation sets a fee cap of 20 percent this does not allow for all clients to be charged at this rate. In our original warning notice we made clear that any fees charged that are greater than 15 percent of a client’s damages are unreasonable, unless the work involved and the risk to the firm clearly demands a greater percentage of the damages.

Legal proceedings should not be issued to try to avoid or limit the impact of the fee cap. Proceedings should only be issued when it is in the client’s interests. Attempts to avoid or limit the impact of the fee cap by issuing proceedings are likely to breach the SRA Principles 2011 and Outcomes in the SRA Code of Conduct 2011.It is unlikely that you would be acting in your clients’ interests or treating them fairly if you have agreed to be paid a percentage of the client’s damages that exceed fees that would have been payable had your usual hourly rate been charged.

In all circumstances, any fees you charge should be reasonable and proportionate to the work undertaken. This is particularly the case where the work carried out is limited, for example, to submitting a notice of claim and agreeing settlement. It is important that you do not exaggerate the time or effort involved in submitting a claim.

Claims Management Companies looking to engage with you and form an alternative business structure (ABS) firms will not avoid regulation as fees they charge will also be subject to the interim fee cap. All SRA licensed ABS’s must comply with the SRA Principles and Code of Conduct and will be subject to regulatory action if issues of professional misconduct are identified.

Cold calling

You must make sure that clients do not come to you through cold calling by your firm or a third party. Some third parties obtain client details illegally and you may be at risk of infringing applicable data protection legislation by the unauthorised use or handling of data. You should ensure the introducer is aware of your duties and you check regularly that their methods of marketing and contact do not put you in breach of the code. You could, for example, ask clients how they were first contacted. If you fail to make the position clear you are at risk of non-compliance.

You should have regard to the following outcomes:

O(8.1) your publicity in relation to your firm is accurate and not misleading, and is not likely to diminish the trust the public places in you and in the provision of legal services

O(8.3) you do not make unsolicited approaches in person or by telephone to members of the public in order to publicise your firm Acting in the following way may tend to show you have not achieved the outcome and therefore complied with the principles

IB(8.6) allowing any other person to conduct publicity for your firm in a way that would breach the principles

Referral arrangements

All referral arrangements must comply with the required outcomes in Chapter 6 and/or 9 of the Code of Conduct. You must be satisfied and be able to evidence that the agreement or relationship with the referrer does not affect your ability to take proper and ongoing instructions from your client, or the way you deal with your client’s information or manage your client’s matter.

You have a duty to:

  • make sure that contracts or other arrangements between your client and a referrer are fair, and
  • cease dealing with a referrer whose contractual terms or other conduct are contrary to your clients' interests or to the rule of law.

You should have regard to the following outcomes:

O(9.1) your independence and your professional judgement are not prejudiced by virtue of any arrangement with another person

O(9.2) your clients’ interests are protected regardless of the interests of an introducer or fee sharer, or your interest in receiving referrals

O(9.3) clients are in a position to make informed decisions about how to pursue their matter.

If you rely on an introducer, you should:

  • only use the services of regulated claims management companies
  • review your referral arrangements regularly, making sure this one referrer is not your sole source of work, and
  • make sure that the arrangement or behaviour of the introducer does not put you in breach of your duties.

Fraudulent claims and taking unfair advantage

O (11.1) you do not take unfair advantage of third parties

Acting in the following way might tend to show that you have not achieved outcomes and therefore complied with the principles:

IB (11.8) demanding anything for yourself or on behalf of your client that is not legally recoverable

When taking instructions from a client, to make a claim against a third party, you should ensure you have correct details of the client’s identity and claim. No claim should be made on behalf of a client unless you can evidence there is a sound basis for the claim and that you have valid instructions. You should not demand anything from a third party, such as compensation for mis-selling, where there is no legal right to recovery.

Where you issue a claim knowing it is not a valid one or not having investigated the validity of the claim, you will leave yourself open to disciplinary action for breach of:

  • Principle 1, upholding the rule of law
  • Principle 2, acting with integrity
  • Principle 6, for behaving in a way that fails to maintain the trust the public places in you and in the provision of legal services

You may also leave yourself and your clients open to criminal action for fraudulent claims.

Enforcement action

Failure to have proper regard to this warning notice is likely to lead to disciplinary action.

Further guidance

Previously issued guidance on acting in PPI matters  

For guidance on conduct issues, contact the Professional Ethics Guidance Team  

Questions and answers relating to the interim fee cap

On 10 May 2018, the Financial Guidance and Claims Act 2018 (“the Act”) received Royal Assent. The Act:

  • prohibits fees of more than 20%, excluding VAT, being charged for PPI claims, and
  • restricts SRA authorised firms and regulated individuals from charging a client where no award has been recovered.

The interim fee cap is effective from 10 July 2018 (two months from the date of Royal Assent).

These questions and answers form have been produced to help firms in understanding the effect of the interim fee cap and detail how we intend to monitor and enforce it. They should be read in conjunction with our warning notice.

Open all

“PPI claims and charges for claims management services: general

  1. This section and sections 30 to 32 make provision for a fee cap to apply in certain circumstances to charges for regulated services provided in connection with a PPI claim.
  2. The following provisions explain terms used in those sections.
  3. The fee cap applicable to the amount charged for regulated services provided in connection with a PPI claim is 20% of the amount recovered for the claimant in satisfaction of the claim.

Accordingly, where nothing is recovered (whether or not a claim has been made or concluded) the fee cap is zero.”

It also applies to Claims Management Companies (CMCs) and persons regulated by the General Council of the Bar or the Chartered Institute of Legal Executives.

Agreements which include terms relating to fees that exceed the cap will be unenforceable and the client will be able to recover the excess amount paid from you.

Firms should make sure that, where the introducer has provided claims management services to the client or the client is referred to a third party to provide services relating to the PPI claim, that the collective fees to do not exceed the 20% fee cap.

A firm that charges more than 20% of a client’s redress will be in breach of the SRA Principles and likely to have breached Outcome 1.1 and 1.6 of the SRA Code of Conduct 2011.

the 20% cap is exclusive of VAT

The total of fees that are charged on your hourly rate must therefore, not amount to more than 20% excluding VAT of the total amount of redress awarded.

All firms have a regulatory duty to act in their client’s best interests, which means all charges must be justifiable and equate to the level of work undertaken. If we find evidence a firms’ charges are unjustified, even if they are below the cap, we may still take potential action.

Since many PPI claims can be handled in a straightforward manner by members of the public themselves, without attracting a fee, we would also expect solicitors to always advise their clients accordingly in all such cases.

This means that the interim fee cap does not apply to charges for work carried out in taking formal steps in proceedings which have been issued.

The ‘Conduct of litigation’ however, does not include any steps taken prior to the commencement of litigation; i.e. before proceedings are issued or to work carried out after the issue of proceedings which are not formal steps. Therefore, the fee cap will apply to charges for work done prior to the commencement of proceedings and to work done after other than charges for steps taken in the actual proceedings such as filing court documents.

Attempts to avoid the fee cap by issuing proceedings are likely to breach the SRA Principles 2011 and the SRA Code of Conduct 2011. Firms should also have regard to Andrew & Ors v Barclays Bank plc [2012] EWHC B13 (Mercantile). Proceedings should only be issued if it is in the client’s best interests.

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