How can the high-volume consumer claims market work better for consumers? (our responses)
Challenge 1: Improving transparency and clarity for consumers about their claim
How can we enhance our regulation of high-volume consumer claims, so consumers are clear about what they are signing up to (for example through developing standardised wording or checklists for firms to refer to during the onboarding process)?
Reputable law firms have a good idea of what is required and what it means to be transparent. To ensure a minimum standard is met by all firms in this space, it would help if the SRA set out clear minimum requirements on what should be included in marketing materials and client retainers, and what should be made available during the onboarding process. The following should be borne in mind:
- Some fee structures can be complex, and it is important to balance the average client’s need to understand this without having to read pages of explanation, with the need for transparency. Whilst full details of the fee structure should be made available, many clients also just want to get through the onboarding process easily. It is equally neither efficient nor feasible to offer every potential client in a high-volume consumer claim an individual call to walk them through a fee structure. As such, there needs to be a fair balance in the information requirement to ensure potential clients are appropriately informed but not dissuaded from signing up due to overwhelming levels of information.
- Law firms have to ‘market’ a claim to a potential client. This should not always be seen through a negative lens. Access to justice can often mean highlighting an issue to a client of which they would not otherwise have been aware. Through this ‘marketing’ activity, clients need to be aware of what the compensation levels could be. Defendant law firms are now tactically attacking claimant firms’ marketing materials in an attempt to undermine a claim at an early stage and circumvent liability. The SRA’s approach to ‘marketing’ should be clear and not hinder access to justice by creating a tactical line of defence for corporate wrongdoers. Clear SRA guidance on what constitutes acceptable marketing (with the idea that this informs the potential client about possible compensation) would ensure consistency across the sector.
- For both of the points mentioned above, some further practical realities should be considered. Law firms have limited budget to spend on marketing and building a book of clients. Any sums spent should, therefore, be aimed at helping a potential claimant to make an informed decision (usually at a distance) within an appropriate length of time on whether they should participate in a high-volume consumer claim.
What approaches do other sectors take to ensure consumers are appropriately informed about risks?
There is no sector which is directly comparable in terms of risks. The risks in high-volume consumer claims should be limited to the consumer having to pay a fee to a lawyer, contingent on a win, with that payment coming from any recoveries from the claim. A law firm should not be exposing a consumer to any adverse cost risk or out-of-pocket costs in this scenario. The closest comparable sector is finance in relation to credit cards and credit, where consumers are often led to think that they have nothing to pay up-front (e.g. through the use of phrases such as ‘pay later’ or ‘free for a year’, when in fact there are significant levels of interest/ fees that accrue immediately). Fees are usually explained in small print, but not necessarily in the advertising headlines. This has now become stricter, with some firms being investigated by advertising watchdogs, with requirements to be clearer in their marketing.
The term ‘no win, no fee’ falsely implies that there is nothing to be lost in commencing such litigation, which is clearly not the case. What further should be done here to impress upon consumers the risks of litigating in these circumstances?
The only circumstances in which a consumer could be liable for any costs out of pocket are as follows:
- Adverse cost risk, if there is insufficient After the Event (ATE) insurance in place. This might arise when:
- the law firm does not put sufficient ATE cover in place;
- the source of funding for the ATE no longer exists;
- the firm has decided to discontinue the claim and there is insufficient ATE; or
- the law firm folds and there is insufficient ATE.
- Fees might become payable to a law firm before a ‘win’ if the consumer decides to withdraw from a claim, despite advice from the law firm to not withdraw. If the firm has incurred individual costs on behalf of the consumer, the consumer will be liable for these fees.
These risks and potential scenarios should be explained clearly to consumers. It is impossible, however, to summarise this in marketing material. As such, the phrase ‘no win, no fee’ should, either not be used at all, or be qualified by a phrase such as: ‘You may be liable for costs in some circumstances’. These should be capable of being included in a summary document.
The term ‘no win, no fee’ is clearly aimed at giving confidence to clients to enter into such arrangements. Should we seek to restrict, prevent, or caveat use of the term ‘no win, no fee’? Should this marketing term be banned across the board?
Please see our response to question 4 above.
Are firms doing enough to accommodate individual needs through high-volume claims processes? If not, what more could firms do to meet the needs of consumers with vulnerabilities through a high-volume consumer claim? Do we need to make regulatory changes to achieve this?
There is a distinction to be made between Claims Management Companies (CMCs) and those who simply bookbuild, and more reputable firms that are adequately staffed by lawyers who run cases with attention paid to nuances between individuals within their book clients. Historically, CMCs have bulk-processed cases without having any consideration for individual clients. This has led to a culture of some cases being passed on to law firms, and some clients being passed on from firm to firm. This shows that one of the key issues to be tackled is at the source, with the CMC/ book builder. They should only be bookbuilding if they are instructed by a particular law firm that is equipped, staffed, and funded to run the case. Skilled law firms progressing cases in this space should have appropriate systems in place to ensure that they are able to communicate with clients in an appropriate way, including on an individual basis and/ or with additional measures, where necessary.
Challenge 2: Managing risks around third-party litigation funding
What steps could we take (such as routinely collecting information) to make sure firms regulated by us manage the risks around third-party litigation funding so that consumers are adequately protected?
It could be onerous (on both the SRA and the law firm) to have a requirement to provide information on litigation funding and any changes that arise throughout the life of a case, particularly where firms have multiple active cases. Instead, the focus should be on having clear rules around ATE insurance and for third party funders to commit to fund the ATE insurance until the end of the matter, unless the merits of the case/ chance of recovery change. In the latter situation, the commitment should be up to the point of discovery (including a reasonable period thereafter to take instructions and confirm the position on merit and recoverability).
Challenge 3: Making sure after-the-event insurance meets consumers’ needs
What more could be done to improve the protection that ATE insurance offers consumers when they are pursuing claims
ATE insurance offers protection up to a certain amount, and it is for the law firm/ funder to ensure that this is sufficient. There could be more guidance from the SRA on what is considered sufficient cover. See also question 9 above. There is also arguably a role for the proposed Defendant to play in being transparent as to likely adverse costs. It is standard practice to challenge a Claimant’s ATE policy and level of cover, with limited or no disclosure of the indicated level of exposure. To the extent the SRA is looking to protect the consumer in this scenario, there could be greater transparency.
Challenge 4: Making sure our regulation keeps pace with a changing market
Should we enhance our regulation of firms working in high-volume consumer claims? For instance, should we have an enhanced authorisation process for all firms working in this area? Should we continue our programme of proactively checking compliance of firms already working in this area? Are there other things we could be doing? Or if you don’t think we need to enhance our regulation in this area, why not?
Additional regulation will be onerous and is not likely to lead to identification of issues at an early stage. The key area to regulate is CMCs/ book builders that are marketing for cases that do not exist, with consumer ‘leads’ then getting passed around between law firms, where offers of risk-free litigation have already been communicated by the CMC. Guidance on advertising, what should be included in client retainer documents, and sufficiency of ATE is also welcome.
What factors should we take into account to make sure consumers’ interests in high-volume consumer claims are well protected if their files are transferred to another firm?
Any law firm inheriting files should review files and funding/ ATE arrangements from scratch. The SRA should ensure that this is being done and that the law firm is adequately equipped and has the requisite systems, expertise and funding available to support the files for the likely duration of the claim.
Challenge 5: Delivering wider improvements across the system for consumers in high-volume claims processes
We believe there is scope for consumer interests to be better protected by the wider system. Thinking about good practices seen in similar areas such as Group Litigation Orders, is there more we could do in this area? What more could others do?
Whilst the opt-out regime in the Competition Appeal Tribunal (CAT) has taken some time to develop, judgments are starting to land and provide redress to consumers. The cases are brought from a competition lens. The opt-out regime, however, should be extended beyond the competition realm and into the consumer space as well. This reduces the need for consumers to bring high volumes of individual cases and allows like issues to be determined together efficiently. Firms in this space have brought numerous claims to test the utility of representative actions under the Civil Procedure Rules (CPR) 19.8 and have failed. Under the CPR, there is currently no efficient opt-out regime for bringing into focus viable collective actions on behalf of consumers, and claimant firms are reliant on finding a competition angle to bring the claim in the CAT. We have seen that this has led to the CAT’s resources being stretched, when it is the High Court that may be the appropriate venue for most group consumer cases.