FCJ responds to SRA consultation on protecting consumers from excessive charges in financial services claims

Fair Civil Justice (FCJ) has submitted a response to the Solicitor’s Regulation Authority (SRA) consultation on protecting consumers from excessive charges in financial services claims.

The Financial Guidance and Claims Act (2018) placed a statutory duty on the Financial Conduct Authority (FCA) and SRA to make rules ensuring “an appropriate degree of protection for consumers against excessive charges” for claims management services. The Act does not define “excessive fees”, but we believe the guiding principle for SRA should be that fees charged to consumers represent good value for money, and do not disproportionately “eat into” any redress that is awarded.

The new regime must have a balance of protecting access to justice whilst deterring exploitation and malpractice.

FCJ urges SRA to consider fully the behaviours of claims management companies (CMCs) and law firms in the context of volume claims which cause, or have the potential cause, consumer detriment, including:

1. failure to conduct proper due diligence on referred clients’ identities before making enquiries and commencing claims;
2. misuse of the SAR process either as a “fishing expedition” or pressure tactic;
3. failure to obtain proper (or any) authority to act on behalf of clients;
4. duplication of claims and claims issued in error;
5. issue of claims that have little or no prospect of securing redress for the clients; and
6. law firm advertising which is misleading insofar as it overstates benefits such as potential levels of redress and understates complexity and risk (e.g. the fact that a claim which may initially proceed through a statutory scheme might ultimately have to be pursued through the courts with the associated downside costs risks).

FCJ supports the exemption of claims which are of an “unusually complex or difficult nature” from the parameters of the banding frameworks, as outlined by SRA has outlined. However, if that term is overly broad or vague it may be subject to abuse. As such, we argue that the regulator may wish to provide a more prescriptive definition in the draft rules on what constitutes a claim of an “unusually difficult or complex nature” as well as illustrative examples of such claim.

When implementing its new rules, FCJ urges SRA to remind solicitors of their professional obligations and existing rules and provide a clear statement of its expectations for firms operating in this market. In addition, guidance should be provided on the way required information disclosures are to be made to clients, including though a standardised “key information” document.

Finally, it is important that SRA regularly and consistently monitors firms that are subject to the new rules in order to understand fully the impact and any unintended consumer detriment that may arise, including barriers to access to justice.