Warning Notice

Payment Protection Insurance (PPI) claims

Issued on 29 August 2017


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

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) and other similar claims.

Our concerns

Following our previously issued guidance and engagement with Government departments, lenders and others involved in the handling of PPI and holiday sickness claims, 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 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 ability of the legal profession as a whole to serve society (Part 1 - 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

Cold calling

You must ensure that clients do not come to you as a consequence of cold calling by your firm or a third party. Some third parties obtain client details illegally and you may be at risk of infringing the Data Protection Act 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, for example by asking clients how they were first contacted. If you fail to make the position clear you are at risk of non compliance.

You should have particular 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 you enter into 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 ensure that contracts or other arrangements between your client and a referrer are fair and to cease dealing with a referrer whose contractual terms or other conduct are adverse 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.

You should use the services of regulated claims management companies and review your referral arrangements regularly, making sure they are not your sole source of work and that the arrangement or behaviour of the introducer does not put you in breach of your duties.

Client interests and charges

You have a duty to act in your client’s best interests, treat your client fairly and to uphold the rule of law. When agreeing your fees with a client you should ensure they are fair and reasonable (Solicitors (Non Contentious Business) Remuneration Order 2009 Article 3) having regard to all the circumstances of the case.

Where you have agreed to be paid a percentage of the client’s damages that are greatly in excess of fees that would have been payable had your usual hourly rate been charged or are not proportionate to the work undertaken, it is unlikely that you would be acting in your clients interests or treating them fairly. 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.

A recent proposal by the Claims Management Regulator for capping claims management company (CMCs) fees charged in PPI cases, sets a costs limit of 15 percent of client damages. CMCs that become alternative business structures to avoid the capping of costs should be aware that when we are investigating any complaints regarding unreasonable fees in PPI matters, we are likely to consider anything above the 15 percent to be unreasonable, unless the work involved and the risk to the firm clearly demands a greater percentage of the damages.

It should also be noted that by becoming an alternative business structure (ABS) firms will not avoid regulation - any costs charged by the ABS will need to fair and reasonable in the circumstances.

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

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