Claims culture 'fails' consumers, Citizens Advice report

So-called 'no win, no fee' agreements in personal injury claims are often failing consumers, a new report from the Citizens Advice Bureau has found.

The report 'No win, no fee, no chance' revealed that complex systems for dealing with personal injury claims have led to the emergence of unregulated "claims farmers". Under these agreements, where insurance is often taken out against a failure of the claim with the cost borne by the claimant, the costs can end up being more than the benefit.

David Harker, Chief Executive of Citizens Advice, said: “Many people think that 'no win, no fee' does genuinely mean they won’t have to pay anything. But in reality the costs are hidden and could wipe out their compensation. They could even end up owing money, adding insult to injury."

Citizens Advice wants Sir David Clementi’s imminent report on legal services to tackle the "regulatory gap" involving such claims firms.

Gathering evidence from some 200 Citizens Advice Bureaux, the report found:

• Consumers were subjected to high-pressure sales tactics by unqualified intermediaries;
• Consumers were being misled by the term 'no win, no fee' as consumers are often asked to pay for loan-financed insurance premiums and other hidden costs;
• There was no effective way of controlling the legal and other costs that the consumer faces;
• People on low incomes with good claims for small sums often found they could not find a lawyer if the claim is considered to be of insufficient value.

Citizens Advice said they had handled 130,000 problems relating to such claims since 2000.

In one case a man from Lancashire who had an accident at work was awarded £1,250. But, as he had taken out insurance to cover the costs with a loan company and with the interest plus the solicitor’s bill, he now owes nearly £2,400.

Citizens Advice called for staff involved in selling 'no win, no fee' products to be subject to independent regulation with costs also regulated to protect the consumer.

Around 2.5 million people in the UK have an accidental injury each year, while these people have a right to compensation, less than a third actually claim it.

The report noted that number of claims being made each year has gone down by 50,000 cases since 2000 when legal aid for personal injury cases was abolished.

(SP/MB)