Djanogly: pooling of marketing resources does not in itself breach ban
Justice minister Jonathan Djanogly has affirmed the government’s belief that the ban on referral fees will not catch solicitors’ collective marketing schemes, despite continuing concerns that the legislation does exactly that.
In correspondence with leading regulatory solicitor Andrew Hopper QC – seen by Legal Futures – Mr Djanogly said: “This is an issue to which I and my officials have given very careful consideration; it is not the government’s intention to prohibit or interfere with legitimate commercial contracts lawyers may enter into with other organisations for the purpose of advertising. It is and will remain legitimate for businesses to market themselves with reasonable marketing costs.
“The government is content that the pooling of marketing resources does not in itself breach the prohibition on referral fees. However, such activities may still be subject to scrutiny by the relevant regulator to ensure that they are not merely being used as a means of avoiding the ban on the referral of injured claimants for profit. Regulators will have the power to require the regulated persons to prove that payments for any ‘marketing’ are reasonable and do not include a referral fee element.”
Mr Hopper argued that the wording of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 catches collective schemes like National Accident Helpline and InjuryLawyers4u: “Even an outsourced call centre would be caught on the same basis. Internet advertising whereby Google or other search engines are paid by ‘click through’ could be caught… all that is required for the ban to be effective is the exchange of information [about potential claimants] and payment between two entities, one being a law firm.”
He said the only model which was insulated from this was where a single entity both obtains the clients and provides the legal service, whether a law firm with a marketing arm or an alternative business structure (ABS).
“I believe it is this very factor that has led to an increase in the number of ABS applications, because insurers and others who are substantially dependent on the flow of referral fees see the only solution to be to acquire one or more law firms to lock the profit from combined marketing and legal services into one body.
“It is ironic that this could have the effect of avoiding the ban, while business models of which the government approves will be prohibited.”
Though Mr Djanogly said the government will ensure that the Solicitors Regulation Authority (SRA) and other regulators understand the objectives of the ban, Mr Hopper pointed out that they will be bound by the Act to interpret collective marketing schemes as contravening the ban.
Samantha Porteous, chief executive of National Accident Helpline, told Legal Futures that Mr Djanogly’s letter was helpful and that she believes schemes such as NAH will be acceptable. “If they’re going to catch us, they’re going to catch people like Google,” she said.
However, she acknowledged that until the SRA provides complete clarity, “we can’t be complacent… we are keeping our options open”.
In its recent discussion document on how to implement the ban, the SRA noted that while it is not the government’s intention to prevent joint advertising by groups of solicitors, “many claims management companies may legitimately argue that they are carrying out marketing for groups of firms and that they are not caught by the ban.
“Such activities may be under particular scrutiny as we will want to ensure that they are not being used to avoid the ban.”
There is a fundamental difference between Injury Lawyers 4U which is wholly owned by solicitor shareholders and merely passes on details from callers on a rota basis, and National Accident Helpline which is not owned by solicitors and is clearly there to make a substantial profit for its shareholders from each referral. IL4U is truly solicitors pooling resources, NAH is clearly not.
Firms using pay per click merely advertise on Google and potential clients click through to the firm direct. This is not pooling resources either, it is a single firm offering its services through a direct advert.
It is not at all clear to me why NAH might be able to continue in its present business model and not be in breach of the ban like all the other CMCs which the government now seeks to ban.
Is this just a case of the government biting off more than it can chew? It said it would ban referral fees but now seems to be back tracking from that by calling pretty much any model a pooled resource even though it clearly is not.