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Which? Consultation response

Legal Services Reform Team
Department for Constitutional Affairs
3.09 Selbourne House
54-60 Victoria Street
London
SW1W 6QW

DATE:

09 January 2006

TO:

Katie Leslie

RESPONSE BY:

Louise Restell
Campaigns

THE FUTURE OF LEGAL SERVICES: PUTTING CONSUMERS FIRST

Introduction to Which? and our legal services campaign

Which? is the largest consumer organisation in Europe, with around 700,000 members. Entirely independent and not-for-profit, we are funded through the sale of our Which? range of consumer magazines and books. We are also a provider of legal services through Which? Legal Service, offering consumer advice to subscribers. The service is regulated by the Law Society and the Bar Council. A subscription to W?LS costs £51 per annum (or £39 to Which? members). Which? was formerly known as the Consumers' Association.

Which? strongly supports the proposals set out in the Governmentís White Paper The future of legal services: Putting consumers first. Access to justice is a fundamental consumer right and effective regulation of legal services is vital to restore consumer confidence in a system which many feel is currently letting them down. Many people are happy with the service they receive from solicitors, but when they are not many donít complain. This is because they think it is more trouble than itís worth, itís unlikely anything will be done or they donít know how or to whom to complain1.

Which? thinks consumers deserve better and welcomes the proposals as taking a significant step in the right direction. The radical overhaul of the regulation of

1 Online omnibus of 2,081 adults across GB 2-4 November 2005

Which? is the business name of Consumersí Association, registered in England and Wales No. 580128, a registered charity No. 296072. Registered Office 2 Marylebone Road, London NW1 4DF.

legal professions set out in the White Paper will make it easier to access legal services, ensure better protection for consumers and help to reduce the negative perception many people have of the legal professions. It is vital the proposals are not watered down during the legislative process and proper resources are made available to ensure a truly robust regulatory system operating on behalf of consumers.

Which? research reveals the problems

Once in a while we will all need to use a solicitor to help us with legal issues, most commonly buying a home, drafting a will or getting divorced Ė all very stressful events. Which? research2 shows that eight in ten people have used a solicitor, but a third donít feel they are getting a good service. Almost a quarter think their solicitor did not listen to their opinion, and almost a third did not feel well informed about how much they would be charged. Sadly for solicitors, this means only financial advisers, estate agents and politicians are trusted less by consumers.

In 20043, we asked people who had had a problem with solicitors to get in touch

with us to tell us about their experiences. Key issues were excessive delays, negligence, making mistakes, poor communication, including not being informed of delays, and many bills coming in much higher than the original estimate with no prior warning. The professional rules for solicitors in England and Wales state they should give an estimate at the outset, but more than half the people in our survey said they received no cost estimate at all, and only about a quarter said they had one in writing.

Worse still, more than 40 per cent of our respondents said, despite being unhappy enough to write to us, they hadnít made an official complaint, mainly thinking it would be a waste of time, too stressful or too much hassle. We believe customer care needs to be embedded in this industry. Until solicitors start treating their paying customers with respect as the people who pay their fees, consumers will feel frustrated with their treatment.

The White Paper proposals

We have confined our response to where we think the proposals require further clarification or where we disagree.

2 Which? surveyed 2002 adults 18+ using an online omnibus survey between 11-14 March 2005. This was weighted up to 2027 adults to make them representative of all adults in the UK.

3 Which? postal survey of 321 people in January 2004 who felt their solicitor had given them a poor service in the last three years

Page 2 of 10

1. A new regulatory framework

We are pleased the Government has put consumers at the heart of the new system. Which? research has shown why this is so important Ė for example two-thirds of people surveyed said they werenít given any sort of estimate of how long their case would take and, of those who were, nearly two thirds said it took longer 4.

As we said in our response to the Clementi review5, we believe the key objectives of a regulator should be access to justice and consumer and competition considerations. We would strongly advocate these objectives come before any others. In particular, we do not want to see the encouragement of a strong and effective legal profession leading to one which successfully exerts power and influence over decision-makers. We also donít think it is necessarily the role of the regulator to increase public understanding of the citizenís legal rights. Instead, we hope the new system will itself promote transparency and understanding.

We would agree that any changes to the objectives and principles of the regulator could be made through secondary legislation, but only if there is proper consultation with the Consumer Panel and others beforehand.

2. Simplifying regulation

We strongly support the Governmentís proposal to set up an independent Legal Services Board (LSB) to provide oversight regulation. We believe that by ending the current maze of regulators, consumers will be clear about how regulation works and can be confident it is designed to meet their needs and not those of the providers.

It is clear that self regulation isnít working because people have complained to us time and again about the second-rate service they receive from solicitors. Our research shows that a third of consumers donít feel they received a good service from their solicitor, 39 per cent donít feel they were kept up-to-date with what was going on with their case and 29 per cent feel they received either fairly or very poor value for money.6 We believe that as the new single, oversight regulator, the LSB will encourage best practice, transparency and accountability, helping to rebuild consumer confidence in the industry.

We agree the LSB should be set up as a non-departmental public body (NDPB) but there should be consultation about the precise form it takes. For example, it is likely Which? would want it to be an executive NDPB, established in statute and

4 ibid

5 see http://www.which.net/campaigns/other/legalservices/0407legalservices_cresp.pdf

6 Which? online omnibus of 2002 adults in March 2005

Page 3 of 10

employing its own staff, with its own budget and reporting to Parliament. If it is self-funded, like the Financial Services Authority (FSA), this would help to ensure its independence and clearly separate the regulation of the legal profession from the government, but its operations would be less transparent. In particular, we would want to be sure that Freedom of Information legislation would apply. Furthermore, there should be formal consultation around any future amendments to the LSBís powers.

We support the view that Front Line Regulators (FLRs) should clearly split their regulatory and representative functions and are pleased that the existing professional bodies have already started to do this. The LSB must take a robust view on how these arrangements operate to ensure the two functions are kept separate and FLRs are not driven by the interests of their members. The process of authorising FLRs should be made public and there should be regular reviews of how they are performing. There needs to be further clarification as to whom has the power to approve, modify or remove authorisation from FLRs Ė page 29 of the White Paper says the LSB will de/authorise FLRs, but page 36 says the Secretary of State will have this power (on the advice of the LSB). We firmly believe the LSB should be responsible, otherwise the system will become unworkable and would be open to criticisms that the government is interfering with the regulation. Any appeal about an authorisation decision by the LSB should go to the courts following an internal review.

Which? also supports the proposal to set up a consumer panel and for the majority of the LSB to be non-lawyers. And we agree the LSB should apply for designation as an enforcer under Part 8 of the Enterprise Act 2002, or, depending on the timing of implementation, the equivalent powers under the Unfair Commercial Practices Directive.

We agree the LSB and FLRs will need to establish working relationships with regulators in other relevant sectors and these need to be carefully put together to ensure consumers do not fall through any gaps. For example, Which? research suggests some consumers may have suffered a significant detriment by buying an endowment policy from a solicitor because they may not be entitled to the same level of redress as consumers who had bought a similar product from an organisation regulated by the FSA. The Legal Services Complaints Commissioner said in her 2005 interim report7 that she would be investigating the potential scale of this problem. This demonstrates the need for regulation to focus on the service and not the entity (e.g. a solicitor providing financial advice is regulated by the FSA

7 Pushing for Change: Interim report on the Law Societyís complaints handling performance, April to September 2005, Legal Services Complaints Commissioner

Page 4 of 10

for this activity) and any agreements between the LSB and other regulators should take this into account.

3. Confidence and choice Ė new ways of delivering for consumers

Which? is generally very supportive of the proposals to end the restrictions on the types of business structure that solicitors and barristers can form to provide legal

services. We believe this will make it easier for new providers to enter the market,

stimulating competition and innovation. It should also pave the way for more diverse legal services provision, delivering high standards of customer service, greater efficiency and improving price and quality for consumers. It will also enable multi-disciplinary partnerships (MDPs), one-stop-shops delivering packages of legal and other services meeting consumersí needs, for example conveyancers, mortgage advisers, surveyors and estate agents working together.

We believe consumers also support these proposals. Which? research carried out in May 2004 showed that 63 per cent of adults would not have concerns about getting legal advice from supermarkets or banks. Fifty-nine per cent agreed it doesnít matter where you get advice from, provided the advisers are properly trained.8

It is not clear from the White Paper exactly how the regulatory arrangements for Alternative Business Structures (ABS) might operate. In the first instance, as figure 3 on page 42 suggests, FLRs seeking authorisation to regulate ABSs should set out in their application all the activities they plan to regulate, including those not covered by the LSB (e.g. financial services, surveying) to ensure robust arrangements are in place with other regulators.

We are concerned that consumers should have the same level of protection as they would when buying products from companies regulated directly by other regulators (e.g. the FSA). For example, if a consumer has a complaint about a financial product bought from an MDP they will initially complain to the firm concerned and then to the new Office for Legal Complaints (OLC). We assume that if their complaint concerns a financial adviser their complaint would then be passed to the Financial Ombudsman (FOS), ensuring the consumer is entitled to the same level of compensation available as if they had bought the product from a company directly regulated by the FSA.

Alternatively, if the consumer is complaining about a financial product bought from a solicitor in the firm, would their complaint remain with the OLC or would it also

8 Which? face-to-face omnibus of 1009 adults in May 2004

Page 5 of 10

be transferred to FOS? This is important because the proposed compensation limits for the OLC are substantially lower than those offered by FOS and the Financial Services Compensation Scheme. This may also mean there is pressure on the OLC to deal directly with as many complaints as possible. So there must be consistency across redress schemes to ensure consumers donít lose out financially because their complaint is handled by one body rather than another.

It is also important that there is a clear system in place to make sure the complaint doesnít get lost and the consumer is clear about who is handling their complaint and whom they should contact for information. Most importantly, they should not have to complain twice to different complaints bodies about the same issue.

In addition, the agreements between the LSB, FLRs and other regulators would have to take account of other regulatory initiatives, such the FSAís strategic approach to Treating Customers Fairly. At the moment weíre unclear how these would filter through if the inspection and compliance regimes for the LSB and FLRs are different from those expected from financial service companies.

Which? is concerned that firms will be able to apply to any FLR authorised to grant ABS licences. The Government suggests this will provide an element of competition between regulators and, with LSB oversight, all FLRs will provide adequate protection. However, we think this will lead to forum shopping Ė if there are lots of firms with lots of potential regulators there will be a significant incentive for them to flock to the weakest and/or cheapest. It would be better for the LSB to decide on the lead regulator for the new firms Ė that way the LSB keeps an eye on structures (and so gets free market intelligence) and also ensures against forum shopping. It will also help the LSB develop guidelines on how to apportion the regulation of firms.

We support the view that there is no need for lawyers to be in the majority in the new firms and we also donít think there should be a limit on external investment. This will ensure ABS firms can exploit their full development potential, promoting competition and benefiting consumers. Despite concerns that MDPs could create supply problems in rural areas, we believe the LSBís role to ensure access to justice, development of new delivery methods (e.g. through internet or telephone) and the likelihood of new firms entering the market will more than mitigate this.

4. Protecting consumers if new problems occur

Consumers can use a range of legal service providers, some of whom are not

regulated. For example, when making a personal injury claim they can go

directly to a solicitor, who is regulated, or through a claims manager, who isnít at present. But consumers do not necessarily differentiate between providers and so

Page 6 of 10

many wonít realise they arenít protected. Which? supports the proposals to make it easier and quicker to plug any regulatory gaps, enabling changes through secondary rather than primary legislation.

Before making any recommendation to bring a new area under its regulatory umbrella, the LSB should hold a public consultation and consult with the Competition Commission, as well as those already mentioned in the White Paper (the sector, its consumer panel, the Secretary of State, the OFT and the higher judiciary).

Which? would also support opening up the probate and conveyancing markets by implementing section 54 of the Courts and Legal Services Act 1990, which would allow banks and other financial institutions to provide these services. Which? was at the forefront of campaigning for the end of the solicitorsí monopoly on conveyancing and we believe further competition in the market can only benefit consumers. We would expect to be consulted about any further liberalisation of these markets, in particular to ensure consumer complaints donít fall through any gaps in advance of the LSB being set up.

5. Complaints Ė what happens if things go wrong?

Consumers should have access to high quality services at a fair price. When

things go wrong there should be an independent redress system in which

consumers can have confidence. But the legal profession is not delivering: Last year, the Law Society received an astonishing 17,074 complaints, equivalent to more than one for every six solicitors practising in England and Wales. Thatís a staggering 14 per cent increase from 2002. And Which? believes even this is the tip of the iceberg.

A well-functioning complaints-handling system is vital. Our research9 has shown that some people who felt theyíve had bad service from their legal adviser donít think there is any point complaining as they feel the solicitor will always have the upper hand Ė "you cannot beat the system without a large sum of money behind you that you are prepared to risk". Of those who felt they didnít receive a good service but didnít complain, 18 per cent said it was more trouble than it was worth and 16 per cent said it was unlikely anything would be done about it. Furthermore, the current process is seen as exacerbating an already stressful situation Ė "I had had enough hassle and didnít want to prolong my demoralising, annoying experience".

We strongly support the Governmentís proposals to set up an independent Office for Legal Complaints (OLC) to deal with all consumer complaints. Consumers will

9 Which? online omnibus by YouGov of 2081 adults across GB, 2-4 November 2005

Page 7 of 10

now be clear about where to take their complaint and there will be a quick, fair and accessible way to put it right. Furthermore, they will have confidence their complaints will be dealt with transparently and independently. We are pleased the proposals are for the chair and majority of members to be not lawyers, but experts in consumer affairs, complaints handling and customer service.

Consumers do not differentiate between service complaints and disciplinary matters and they should be kept informed of the outcome of any complaint they make, even if it concerns misconduct and is referred to the FLR by the OLC. Consumers should also be allowed to make representations on disciplinary matters arising from their complaints. FLRs should be required to respond publicly to any case referred to them in a set time (e.g. 90 days). It is also vital that consumers are entitled to compensation for financial loss whether their case is a service or misconduct issue and that redress levels are the same across the different schemes operating in the legal services industry.

We donít have a particular view about the upper limit for redress, but we are not sure of the rationale for setting this at £20,000. Paragraph 7.34 on page 138 of the White Paper suggests this figure has been proposed in order to protect suppliers. We would argue that consumersí needs should also be taken into account in setting this limit and that further research may be necessary to determine what this should be. However, as we set out on page 4 of this response, we are concerned to ensure that consumers buying products and services from ABS do not suffer from lower levels of compensation than they would receive through other redress schemes, such as FOS, which means this level may need to be higher.

We support the view there should be no external appeal body for decisions of the OLC, providing consumers still have the right to go to court. But we also want to be sure there are safeguards against solicitors bringing vexatious legal proceedings about the subject of a complaint to avoid investigation by the OLC.

We also support the Governmentís decision not to enable the OLC to delegate

complaints handling to the FLRs, which is vital if consumers are to retain confidence in the system. Our research10 shows 81 per cent of people who have used a solicitor in the last three years agree they would prefer to make a complaint to an independent party and 52 per cent said they would be put off making a complaint if it had to be to another solicitor.

In her interim report for April to September 2005, the Legal Service Complaints

10 ibid

Page 8 of 10

Commissioner also raised concerns at the slow pace of improvement of the Law Societyís complaints handling: It is still missing five out of the seven targets in its plan, including three of the targets for timeliness, and those for quality of decisions and customer satisfaction. Furthermore, four out of ten of all consumers remain dissatisfied with the way in which the Law Society handled their complaint.11 This re-emphasises the need for a new, independent OLC that can really deliver for consumers, not just a re-badging of the existing Customer Complaints Service (CCS) with the same cultural and operational problems glossed over by a new faÁade.

Only one in four people who have dealt with a solicitor in the last three years have been made aware of the complaints procedure12 even though this is supposed to happen under the Law Societyís regulations. The OLC should be required to monitor whether legal advisers are properly informing consumers about how to complain, as well as promptly making information available about upheld complaints (both service and disciplinary). It should consult with its consumer panel and other consumer groups to ensure this is done in the most effective way for consumers.

Which? would support the FLRs and OLC deciding on the precise funding arrangements, but we would suggest that in doing so they should ensure none of the levy is passed on to consumers in higher prices.

6. Next steps and delivery

In conclusion, Which? is very supportive of the proposals set out in the White Paper as we believe they will fundamentally improve consumersí experiences of the legal professions. We hope to see legislation as soon as possible and would argue for a shadow structure to be put in place to help speed up the transition to the new arrangements. For too long consumersí needs have been ignored in this market and it is vital that the changes come sooner rather than later.

Summary of key points

The regulatory framework

  1. > The Key objectives of the LSB should be access to justice and competition and there should be wide consultation about any proposed changes to these.

Simplifying regulation

  1. > There should be consultation about the form of the new LSB.

11 Pushing for Change: interim report on the Law Societyís complaints handling performance, April to September 2005, Legal Services Complaints Commissioner

12 Which? online omnibus by YouGov of 2081 adults across GB, 2-4 November 2005

Page 9 of 10

  1. > The LSB must be robust and ensure FLRs keep representative and regulatory functions separate.
  2. > The process of de/authorising FLRs should be made public and there should be regular reviews of how they are performing.
  3. > The LSB must have the power to award, modify or remove authorisation from FLRs.
  4. > Regulation should focus on service and not entity to make sure consumers donít fall through any gaps.

New ways of delivering

  1. > There needs to be clarification over regulatory arrangements for ABS.
  2. > Consumers must have same level of protection/compensation wherever they buy a product or service.
  3. > There need to be robust arrangements between regulators to ensure consumer complaints about MDP products and services donít fall through any gaps.
  4. > MDPs should not be able to "shop around" for their regulator Ė the LSB should designate the lead regulator for new firms.
  5. > There shouldnít be any limit on external investment for ABS.

Protecting consumers if new problems occur

  1. > The LSB should consult the public and the Competition Commission before recommending a new area comes under its remit.
  2. > The probate and conveyancing markets should be further opened up to competition.

Complaints

  1. > Consumers should be able to make representations on disciplinary matters arising from their complaints.
  2. > FLRs should be required to respond publicly to disciplinary cases referred to them.
  3. > Consumers should be entitled to compensation whether their case is a service or misconduct issue.
  4. > The upper limit for redress should reflect upper limits for other redress schemes.
  5. > The OLC should not delegate complaints handling to FLRs.
  6. > The OLC must be a new, independent organisation and not a re-badging of the CCS.
  7. > The OLC should monitor whether legal advisers are informing consumers about the complaints procedure and make information about upheld complaints available.
  8. > Funding arrangements for the OLC should not mean increased prices for consumers.

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