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SRA: Regulator calls on law firms to reduce level of PPI fees ahead of Government cap

Solicitors Regulation Authority

3 min read

Ahead of the Government’s introduction of a PPI fee cap, the Solicitors Regulation Authority (SRA) has re-iterated its call for law firms to consider how much they charge in this area.


The call comes as the SRA issues a thematic review on PPI which reveals that four out of five firms active in this area are routinely charging fees of more than 25 percent of the redress they receive, with some charging as much as 50 percent.

An SRA warning notice, issued in August 2017, stated that charging more than 15 percent could be considered unreasonable, unless justified by the work and risk involved, while the Government’s Financial Guidance and Claims Bill is likely to include a 20 percent fee cap.

With the bill expected to become law later this year, the SRA is urging firms to consider what they are charging clients in PPI cases. Firms are also being asked to think about what value they add to a claim that justifies clients potentially paying a fee instead of filing a claim for themselves at no cost.

It has also warned it will consider regulatory action where firms cannot demonstrate they have acted in a client’s best interest.

While the number of firms active in this market is thought to be relatively small, possibly less than one hundred, they still collectively handle claims worth hundreds of thousands of pounds. The largest single claim identified by the SRA thematic project was worth more than £25,000.

As drafted, the Government cap will impose an absolute limit on fees regardless of how much work is involved in making a claim. In these circumstances it is questionable how firms would be acting in their clients’ best interest by charging fees in excess of the proposed cap.

The SRA acknowledges law firms can play a role in handling complicated or time-consuming claims, but urges solicitors to be mindful of their regulatory duty to act in their clients’ best interests. This especially applies when considering whether clients may be better served by pursuing claims themselves, without attracting a fee.

A deadline of 29 August 2019 is now in place, by which time all claims under the compensation scheme must have been submitted.

Paul Philip, SRA Chief Executive, said: "In the majority of cases, PPI claims can be handled in a fairly straightforward manner by members of the public themselves without attracting a fee. We expect solicitors to always advise their clients accordingly.

“Seeking professional support for more complicated cases is appropriate, but the fees charged must be proportionate to the work actually involved. We have suggested 15% is reasonable and Government will soon be capping fees at 20%.

“Where firms are unable to demonstrate that they are acting in the best interest of their clients, including in justifying the fees they charge, we will consider whether there is a need to take regulatory action.”

The SRA’s PPI Thematic review included detailed surveys and interviews with 20 law firms who were actively involved in PPI work, as well as input from lenders. As a result of information which arose during the review, three of these firms have been referred into the SRA’s disciplinary processes, bringing the total number of firms currently subject to disciplinary action linked to PPI activity to eight.
 

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