Personal Finance and Investing

Another day, another defence of ‘no win no fee’ from me.

This time the (admittedly quite entertaining) article that has jumped on the bandwagon comes from blogger Lee Boyce on ThisisMoney.com and is entitled, ‘The Harassment of No Win No Fee Lawyers.’

Like pretty much everything a government generates in good faith, the doctrine of ‘no win no fee’ is a whipping boy for every commentator who claims that it has engendered scores of malpracticing lawyers and seedy companies.

As I have said before, and will continue to argue, it is the fraudulent claimants and the petty criminals trying to milk the system that should be the scapegoats, the figureheads of dislike and distrust and not the system itself, which though undoubtedly flawed, is still the best route to justice for many claimants.

I had a discussion this morning with a colleague, in which we considered that no win no fee (or the Conditional Fee Agreement, to give it its proper title) has a similar reputation to tabloid newspapers: right-wing types look down their noses at it and anyone who uses it as objects of pity, since they themselves can afford to hand out legal fees hand over fist to the family solicitor if needs be.

Let’s consider a few facts: the vast majority of people who use no win no fee lawyers to arrange personal injury compensation do so because they are both ignorant of, or naive regarding, the precise processes of the law surrounding their claim.

To mock them is like a computer engineer scoffing at someone, who only uses their PC to go on Facebook, because they don’t know exactly how their Intel Celeron processor works. They don’t need to! There needs to be provision in, and access to, the law for people with little understanding or prior interest in legal matters.

The second point is, to make a sweeping generalisation, that people who suffer the most severe work injuries are more likely to earn a lower income: ie if their job involves manual labour or working with heavy machinery.

If they’re injured severely enough that they’re in any degree of lasting pain, or even worse, can’t work, they’re not just going to sit there and accept their lot while the red bills pile up on the doormat. They’re going to be lured by the phrase ‘no win no fee lawyer’ when they look in the Yellow Pages, rather than by somebody who they’re not quite sure whether they’re going to end up paying hefty fees to at the end of their case.

Boyce’s article attacks the forms of advertising through which some no win no fee lawyers contact members of the public, such as via email marketing. Why wouldn’t they? They provide a service like every other firm or organisation that does the same thing. Would he be complaining if a company offering him a discount on his next holiday got in touch the same way?

Personal injury lawyers and claims management companies are legally forbidden from cold calling members of the public or harassing them in any way, under Ministry of Justice Guidelines, which contravenes what the article says.

Boyce also shares his loathing for the TV adverts for no win no fee lawyers and claims companies. If he hates them so much, he doesn’t have to watch them! A remote control button is not a difficult device to operate.

He also says, “I have never had an accident or claimed compensation in my life, which I guess is a lucky thing.”

Good. Nobody would wish injury on anybody, but it stands to reason that he wouldn’t be interested in an advert for a product which he has no need for. If I don’t own a dishwasher I am unlikely to be thrilled by adverts for Finish anti-limescale tablets (although I probably wouldn’t find them that interesting anyway, let’s be honest).

These adverts are for people who have been hurt severely enough to warrant a genuine claim. If the claim is fraudulent, fabricated, or exaggerated, it won’t hold water. And it would be interesting to see how quickly the naysayers’ attitude would change if they suddenly found themselves the innocent victim of a horrific car accident.

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Whether you are applying directly to your lender or claiming eligibility under HAMP, the practical decisions are all to be made by the lender. You do whatever you can to set out your side of the proposed bargain with a clear set of accounts showing money in and money out. The need is to demonstrate a guaranteed slice of your monthly income that can be devoted to paying a reduced instalment. So list everything you are obliged to pay to keep body and soul together, from food to utilities to transport to health insurance, and so on.

Without the modification, this is going to be negative, i.e. on paper, you are spending more than you earn. The “trick” is to show enough to cover a modified instalment, perhaps with a tiny slice of money left over for the inevitable emergencies. If the modified instalment you prove can be paid is enough to keep the lender less unhappy, the modification will be agreed on a trial basis. But if the minimum instalment the lender requires will leave you in negative territory, your offer to modify will be rejected. Why reject a good faith offer? Because people who have to juggle monthly payments to fit into the available money almost always default again. Your income must cover all outgoings.

If the modification is agreed in principle, it moves on to a formal trial basis. In theory, this is a three-month trial, but the reality is that the lenders usually drag their feet and are very slow to convert the trial into a permanent modification. This ought not to affect you. After all, you are paying the agreed amount. But there is a problem. Until the modification is made permanent, the lender will report you to the credit rating agencies as still delinquent. This is grossly unfair.

You are paying what is agreed. But, as the law stands, the unpaid balance each month will be reported as late. Thus, the longer the trial period is allowed to drift the worse your credit score will become. This requires action. You should contact the three major agencies, Experian, Equifax and TransUnion, and ask that details of the trial be added to your credit file. That way, even though your score will continue to decline, all other lenders will be able to see what is going on.

So what is happening during the trial other than you proving your ability to pay the reduced instalments on time? The answer is slightly disheartening. It is always in the lender’s interest to collect as much money from you as possible on your mortgage. But, while you stay in default, the lender is entitled to foreclose at any time. If the lender judges it will make more money by foreclosing rather than accepting the reduced payments over the rest of the term, it will always foreclose.

It is simply collecting as much cash from you as possible before triggering your eviction. No-one said the home loan industry had to work fairly, and it does not. The only time the lender will accept a permanent modification is when the accounts clearly show more profit in keeping the mortgage alive. While the housing market remains depressed, the odds are in your favor. But if resale prices start to rise, the odds will swing against you.

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