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CMA: Consumers in the dark over cost of legal services

Regulatory framework does not significantly impede competition, says market report

12 July 2016

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Consumers are being hampered by a lack of information over lawyer's fees and quality, but deregulation may not be the answer, the Competition and Markets Authority (CMA) has found.

In its interim report into legal services, the CMA discovered that limited price transparency was harming the ability of individual and small business customers to drive competition despite the increased prevalence of fixed fees.

The UK's competition watchdog also stated that while it was 'open to more fundamental change' of the regulatory framework, it warned of the risks of increased regulation and transitional costs as well as regulatory uncertainty. A formal market investigation was not deemed necessary by the CMA.

The watchdog launched its market study in January aiming to discover whether customers were getting a 'good deal' amid concerns about the standards and affordability of legal services.

The interim report found that just 22 per cent of the public would compare providers before choosing one - often relying on recommendations from friends or family - reinforcing the recent findings of the Legal Services Board (LSB) that consumers are hindered by a lack of information.

The LSB had found that only 17 per cent of service providers advertised their prices online in the absence of high-profile digital comparison tools. The effect of a lack of competition was not providing strong incentives for providers to adopt innovation quickly, the CMA stated.

Meanwhile, 13 per cent of customers were dissatisfied with the level of information they received about the progress of their case, while 7 per cent were unhappy with the clarity of information on any changes to the initial cost estimate or quotation they received.

Rachel Merelie, senior director for the study, pledged to improve the situation and said the lack of competition could explain why there have been long-standing concerns over the affordability and accessibility of legal services.

'Our focus now will be on how we can drive competition by improving the information that providers make available to consumers both before they buy - in order to help them shop around - and during the process so that they aren't hit with unexpected costs,' she said. 'We will also look at measures to improve the existing independent information channels that are available for customers.'

Merielle added that the CMA would work with the government, regulators, representative bodies, and consumer groups to look at practical ways it can help consumers, which includes 'considering recommending that providers be required to publish price information in future'.

The Law Society welcomed the CMA's decision not to launch a formal market investigation but disputed the body's calls for improving competitiveness through greater transparency of pricing and service quality.

Catherine Dixon, the society's chief executive said: 'We believe that the market for legal services is already competitive and solicitors offer exceptional services to their clients as a consequence of rigorous training and years of experience.'

Paul Philip, SRA chief executive, also welcomed the report's findings: 'The CMA has rightly focused on the changes that will make the biggest difference to the public. Too many people and small businesses are not using legal services.

'We agree that the best way to address this unmet need is through significantly improving information for the public and driving an open, healthy competitive legal market that provides affordable services.'

Meanwhile Crispin Passmore, the regulator's executive director of policy, said the findings were 'great news for customers because it gives them more access to legal services'.

He added: 'For the SRA, this means we can plough on with the reforms we've got going and we can really focus on what's needed to help the public.'

The CMA observed that some regulations may be disproportionate to the consumer protection benefits they achieve. However, it could only find limited evidence that the costs of regulation created a significant barrier to entry.

While the study did not primarily focus on the regulatory framework, the CMA noted the complex structure but found it did not 'significantly impede competition in the current market'.

The watchdog did, however, refer to the impact of consolidation in other sectors and the positive impact on costs and regulatory independence it could provide the legal profession as well as allowing regulators to encourage competition and move to a more risk-based approach.

The benefits were caveated with the potential loss of expertise in specific areas and to higher regulatory costs being imposed on lower-risk providers.

In a boost to the SRA's plans for regulatory independence, Philip said he was pleased that the CMA found that regulation should be fully independent from the providers of legal services.

'Modern, independent regulation is what the public expect,' he said. 'It supports the development of a competitive legal market and can only increase confidence in both legal services and those who provide them.'

Dixon added that the current regulatory system, brought about by the Legal Services Act, was working effectively but welcomed future changes.

'Although we don't think now is the time for change, we do agree that simpler and better regulation which focuses on applying consistent regulatory rules to protect buyers of legal services across the market is desirable.'

The CMA is now seeking views on its interim findings and must publish its final report by 12 January 2017.

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