Will advisers be keeping an eye on legal reforms designed to curb the “compensation culture”?
The Legal Aid, Sentencing and Punishment of Offenders Act (which came into force on 1 April) changes the way “no win no fee” litigation cases are funded.
On the face of it, it may look the same. There are no upfront fees, and claimants are not left with hefty legal costs if they lose a case. But those who have tripped over paving stones, or whipped their necks in traffic accidents will now pay a ‘success fee’ to lawyers if they are awarded damages – limited to a maximum 25 per cent charge.
The thinking is that if there is some financial cost to claimants it will reduce the number of exaggerated and spurious claims – and put a brake on spiralling legal costs.
Previously there was no incentive for claimants to shop around, as win or lose it is the opposing side that picks up the tab. This has given some carte blanche to push up legal fees in recent years – with some ‘success fees’ bearing no resemblance to the size of the claim.
If these reforms work could similar practices be adapted to other areas of consumer complaint?
The problem until now has been how to deter vexatious or fraudulent complaints about all manner of mis-sold products, without deterring or pricing out those with legitimate grievances.
While the former may be in the minority, there is no doubt they cause significant problems, particularly for smaller firms. It may be those who have simply read about the thousands being paid out on PPI claims, and think as they have had a credit card for 20 years, it is probably worth a punt.
Or it could be those who have had a less than amicable relationship with their bank, their insurer, or their adviser, and decide they are going to create waves. The growing industry of claims management firms, cold-calling, texting, and generally making a nuisance of itself 24-7 does not help either.
So could a similar solution work here? I would argue that it would be better than some upfront charge to weed out the chancers. Even if this is set at a very low rate, it could penalise those who are most financially vulnerable.
Charging a fee to those who pursue invalid complaints is also problematic. Who would decide what are unreasonable complaints, and more complex problems that ultimately are not upheld.
A fee at this point would discriminate against and discourage those in lower income groups who have brought a claim in good faith but can not afford the ‘fine’.
It may seem completely counter-intuitive but perhaps those that are successful should pay a small fee.
This money could be used to improve services like the Financial Ombudsman, or, better still, Citizens’ Advice, which provides real financial help for those that need it most.
At the same time, third parties that fail to carry out due diligence and repeatedly bring claims without any realistic chance of success should be fined out of existence.
As a consumer journalist I realise some of this does not sound particularly consumer-friendly. But if it drove out the worse excesses of the complaint and claims system – which clog up services like the FOS – the this could be a real benefit for customers and providers alike.
Emma Simon is deputy personal finance editor at the Telegraph Media Group