News releases

Firms need to keep control of debt recovery work

Firms involved in debt recovery work need to ensure they have proper control over work carried out in their name, the Solicitors Regulation Authority (SRA) has warned.

The Authority is seeing an increasing number of cases referred to it where solicitors working with debt recovery companies are in danger of breaching the Code of Conduct. The Solicitors Disciplinary Tribunal has recently handed out fines and cost orders totalling £140,000 for two separate incidents of solicitors failing to maintain their independence.

The Office of Fair Trading has recently issued new guidance to all firms engaged in debt recovery work. The SRA has therefore produced a Warning Note that reiterates solicitors' responsibilities when working alongside debt recovery agencies.

It covers among other things:

  • Firms putting their independence at risk
  • Firms being involved in overly aggressive correspondence
  • Firms being involved in misleading correspondence
  • Debt recovery agencies carrying out reserved legal activities as if entitled to do so

The Warning Note is available alongside other guidance dealing with stamp duty land tax and payment protection insurance.

Richard Collins, SRA Executive Director for Policy, said: "There have been a growing number of issues raised about firms involved in debt recovery, so we thought it would be helpful to produce this Warning Note so everyone is clear about what we expect. Firms need to ensure that their independence is maintained at all times.

"We have seen some firms argue that the way in which work is being undertaken is in the best interests of their client and is therefore in accordance with Principle 4. It is necessary for firms to adhere to all of the Principles, and therefore an argument that breaches of other Principles are justified by Principle 4 is unsustainable."

David Middleton, SRA Executive Director for Post Enforcement, added: "While we are committed to working constructively with firms, we will take enforcement action against regulated persons who fail to address the issues and risks associated with debt recovery work. We expect firms to ensure they supervise all work their name is attached to."

Those wanting further guidance should contact the Professional Ethics helpline

 

Note to editors

In the first of the SDT cases referred to, the Tribunal found the nature of the solicitor’s arrangement with a debt recovery company was wholly irresponsible and had resulted in a breach of his regulatory duties. In particular, the referral arrangement compromised the solicitor's independence and ability to act in the best interests of clients. The Tribunal were particularly concerned with a feature of the arrangement which had facilitated the conduct of litigation by the debt recovery company when it was not permitted to do reserved legal activities.

The arrangement had also given the misleading impression to opposing parties and the court that the solicitor was responsible for conducting litigation which in fact was being conducted by the debt recovery company. Of further concern to the Tribunal was the fact opposing parties received letters from the solicitor which could have been perceived as threatening in their demands for payment, and which contained misleading and inaccurate statements. The solicitor was fined £40,000 and ordered to pay costs of £35,000.

In the second case the Tribunal decided that the solicitor’s relationship with a debt recovery business compromised his integrity and his independence. The arrangement meant the solicitor had recklessly misled the court by facilitating the conduct of litigation by the debt recovery company.

It also gave the misleading impression the solicitor was responsible for conducting litigation which was actually being dealt with by the debt recovery company. The Tribunal said they considered this a very serious case and the solicitor was fined £15,000 and ordered to pay costs of £50,000.

Print page to PDF