A thematic review by the Solicitors Regulation Authority (SRA) has revealed serious concerns about the relationship between litigation funders and high-volume mass consumer claims firms. According to an article in Legal Futures – SRA: Claims firms “destabilised” by litigation funding deals – Jennifer Ackers, the SRA’s deputy executive director of investigations and enforcement, laid out the extensive work the regulator has been doing in the area – including warning notices and guidance, disciplinary action and ongoing investigations into more than 60 law firms separate to the thematic review.
An Unstable Business Model
It has been evident for some time that litigation funding in consumer claims has created a volatile and unsustainable business model. The SRA has directly linked firm insolvencies to third-party funding arrangements. This over-reliance on third-party funders is evidenced by recent collapses of firms involved in the Cavity Wall Insulation scandal, which has left more than 1,500 people stranded with tens of thousands in legal bills.
For those firms yet to go under, money moves rapidly between funders, ATE insurers and law firms without proper oversight. This precarious structure often prioritises financial interests over client welfare, leading to unethical decision-making and ultimately, firm closures.
The Rise of Aggressive Marketing
Another worrisome trend is the use of aggressive marketing and onboarding tactics to sign consumers up for mass claims. These can range from cold calling and leafleting to doorbell ringing. The latter is especially hazardous to consumers, as “in-person contact raises the risk of undue pressure” being put on individuals to join claims.
The SRA has found that funders and claimant firms have even been misleading consumers to lure them into claims. The regulator has evidence that firms have given out specious information about their connections to charities or housing associations – likely to seem more amenable to consumers.
Funders Prioritise Profits
The Legal Futures article sheds an uncomfortable light on the conflict of interests between law firms and funders and their clients. Ultimately, the goal of funders is to make a return on their financial investment into these cases. Rather than providing impartial advice, claimant firms will push litigation as the only suitable route for recourse – thus, benefitting their (and funders’) bottom lines. They fail to mention alternatives, such as ADR and ombudsmen services.
The SRA has even found cases where clients signed directly with funders, rather than with the law firms themselves. This raises serious questions about whether these arrangements truly serve the client’s best interests or only prioritise funders’ profit-making endeavours.
The need for reform
The SRA’s ongoing investigations into over 60 law firms illustrates the scale of the problem and the need for reform. The evidence is becoming increasingly difficult for the industry to ignore – the current system is volatile and harmful to consumers.
While the Civil Justice Council’s Review on third-party litigation funding is ongoing, Fair Civil Justice has been championing stronger safeguards and increased transparency measures in the litigation funding industry to protect consumers. The calls for regulation must remain loud and clear.
If not, third-party litigation funders and law firms will continue to capitalise on the unregulated market – jeopardising consumers’ interests and the UK legal system as a whole.
Seema Kennedy is the Executive Director of Fair Civil Justice. She began her career as a lawyer in the City of London before working in business and frontline politics. During her time as a Member of Parliament she served as a minister in the Department of Health and the Home Office, and also as Prime Minister Theresa May’s Parliamentary aide during the Brexit negotiations.
Fair Civil Justice is a campaign to level the playing field for British businesses and consumers from the growing threat of predatory litigation.
We do that by promoting alternatives to litigation which are faster and more effective in resolving disputes, as well as promoting clear rules for business to ensure that the onslaught of litigation is not damaging the long-term growth of the economy.
When going to court is the best course of action, we also argue for stronger safeguards in the process, to ensure that consumers keep more of the proceeds rather than lose the lion’s share to lawyers and litigation funders.
