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Consumers involved in landmark “no-win, no-fee” legal claims against Britain’s biggest banks over mis-sold car loans may be charged as much as £175 an hour if they withdraw from the lawsuits.
Claimants in cases against Lloyds, Barclays, Close Brothers, Santander UK and other lenders could be hit with significant “exit fees” by law firms and claims management companies (CMCs) if they pull out of their case more than two weeks after joining.
While “no-win, no-fee” promises — where a claimant only pays a solicitor’s fees if they win the case — are prominently displayed on law firms’ and CMCs’ marketing materials, references to exit fees are sometimes included only in the small print of customers’ contracts or at the bottom of a customer website.
The motor finance mis-selling claims, which centre on whether commissions paid by car finance providers to dealerships were legal, threaten to cost the banking industry as much as £44bn in compensation, according to some analysts.
These commissions, awarded for selling cars using lenders’ financing agreements, often depended on the interest rate of a car loan, which the Financial Conduct Authority said gave dealers an incentive to provide expensive loans.
But the CMCs and law firms behind the claims are now being criticised for taking advantage of consumers who are alleged to have been exploited by banks and dealerships.
Seema Kennedy, the former Conservative MP who now runs Fair Civil Justice, a campaign group against class action lawsuits, called the exit charges “deeply troubling”.
“Consumers are being lured into claims they may not understand, then hit with extortionate exit fees — potentially thousands of pounds — if they try to walk away,” she said. “Rather than promoting access to justice, it’s a business model built on confusion and coercion.”
Complaints about such fees have emerged as the Solicitors Regulation Authority, the legal regulator for England and Wales, prepares to publish a review into the practices of class action firms, which will include reference to exit fees.
This month the Supreme Court will rule on whether to overturn a decision by the Court of Appeal in October, which found that the commissions paid to dealers were unlawful. Bank share prices have also taken a hit because of the risk that lenders will have to pay billions in compensation.
Some claimants sign up for multiple law firms to take on their case, believing there to be no downside and hoping that it increases their chances of a payout, before cancelling all but one.
“There is some absolutely terrible practice going on at the moment,” said Tom Goodhead, founder of Pogust Goodhead, a law firm that specialises in mass claims and is also running a car finance suit.
He added: “There is a frenzy of activity with the Supreme Court judgment [on car finance] coming out soon. I think there are some very legitimate concerns and I know that the regulators will be looking at this.”
PCP Claimback, a CMC managing claims against Barclays, Black Horse, which is part of Lloyds, and Close Brothers, all on a “no-win, no-fee” basis, warns in its terms: “If you decide to cancel your agreement with us after 14 days, we may charge you a reasonable fee for any work we have undertaken to that point. The cost will be £175 per hour including VAT.” The notice is also displayed at the bottom of its website.
Law firm Courmacs Legal, which says it is working on 4mn motor finance claims, also states that if claimants choose to cancel their claims after a 14-day “cooling off” period they will be liable for legal costs and expenses, which it will charge at a flat payment of £150 plus VAT. If more substantial work has been carried out, Courmacs may charge additional costs.
Darren Smith, managing director of Courmacs, said the firm had to carry out significant due diligence when taking on a case that cost “around £300 per claim — double the exit fee we transparently list on our website”.
Slater and Gordon, a large “no-win-no-fee” firm that helped bring a £193mn case against carmakers over the dieselgate scandal, also may charge claimants for “basic charges, disbursements, barristers’ fees and any applicable insurance costs” if they pull out after 14 days. Slater and Gordon said “any costs payable are set out by the terms of our retainer”.
One law firm pointed out that the terms and conditions used by Pogust Goodhead, the company that raised concerns about exit fees, also threaten to charge consumers if they cancel their agreement. Pogust Goodhead said the clause was a “standard provision”, adding that it never had and would never charge a claimant for leaving a suit.
PCP Claimback did not respond to a request for comment.