CLC regulatory fees overhaul: firms with more complaints to pay more

The legal Services Board (LSB) has approved a request from the Council for Licensed Conveyancers (CLC) to overhaul how it calculates and collects regulatory fees.

Following the reforms, regulated practices that generate “disproportionate” levels of complaints will cover more of the cost of the Legal Ombudsman (LeO), also known as the Office for Legal Complaints (OLC).

The CLC is set to pay £685,000 in 2021 - 2022 for the LeO’s services. Currently, 30 per cent of this is levied on 51 firms, based on usage. However, the CLC plans to increase this to 80 per cent over the next four years.

Since 2016, the CLC has cut practice fees by 42 per cent following growth in practice turnovers, control of costs and “prudent use of reserves”. However, it says costs associated with the LeO have risen. 

According to the CLC, CLC-regulated firms generated an average of 256 cases in each of the last three years which equates to only four per cent of total cases handled by the LeO.

However, the CLC said the levy is a significant cost of regulation, with its budget for associated costs next year set at just under £2m.

The issue has been exacerbated by the covid-19 pandemic. The LeO’s budget has increased by 16.5 per cent to £14.5m as it deals with longstanding performance issues, made worse by the pandemic.

The CLC hopes it proposed reforms will incentivise firms to improve their complaints handling processes to better serve clients and potentially reduce firms’ regulatory fees. 

At present, all CLC-regulated practices pay the LeO levy through their practice fees, which are calculated based on turnover.

The decision to separate the cost will reduce practice fees by an average of 23 per cent for many firms. Presently, nearly half of CLC-regulated practices do not generate any complaints referrable to the LeO. Collection of the practice fees begins this month. The LeO’s levy will be collected separately next May when the final OLC costs for its financial year have been confirmed.

The CLC has said all practices will share 70 per cent of the costs this year, calculated on the basis of turnover. The rest will be based on the average number of complaints against each firm accepted by LeO over the previous three years. As a result, most CLC-regulated practices will see their percentage share of total costs fall.

However, it has revealed that 51 practices will pay an additional usage fee due to high LeO case numbers, calculated based on number of complaints per £1m of turnover.

Two practices will pay an extra £16,000 and £12,000 respectively, 16 firms will pay between £5,168 and £1,044 more (£2,095 on average), and 33 practices will pay between £821 and £25 more (£289 on average).

To smooth progression between charging rates as turnover increases, the CLC has increased the number of turnover bands for calculating practice fees from four to nine. It has confirmed that no firm’s fee rate will be higher this year than what it would have been under the old bands.

CLC chief executive Sheila Kumar said: “Despite the CLC reducing its own operating costs in a sustainable and steady way over the past five years, the OLC’s costs – which are beyond our control – have grown, and continue to grow, very substantially.

“While it is right that all regulated practices should contribute to the costs of complaints handling to ensure availability of the service, introducing a usage fee is fairer, builds in better proportionality into meeting OLC costs and will encourage improvements in complaints handling".

She added: “We will monitor the impact of the new approach on complaints handling. The findings will guide the move from the usage element making up 30% of the OLC levy to 80%. This phased approach gives practices four years to address complaints handling and bring referrals down to proportionate levels.

“We are again freezing individual licence fees, continuing the trend of a real terms reduction over several years.”