Complex legal products risk the law’s own mis-selling scandal, ombudsman warns

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By Legal Futures

11 July 2012


Sampson: cheap and cheerful should not turn into cheap and shoddy

The Chief Legal Ombudsman today warned of the risk of a payment protection insurance-type scandal engulfing the legal profession after collecting evidence of clients being sold complex and confusing legal products that they often struggled to understand.

Adam Sampson warned that economic pressure, price competition and commoditisation all present risks to legal services providers, while there is serious consumer confusion about the cover offered by legal expenses insurance.

Writing in the Legal Ombudsman’s (LeO) 2011/12 annual report, published today, Mr Sampson said complainants had lost money on unrealistic ‘no win, no fee’ promises, dubious fixed-fee services and confusing legal insurance policies. The report records the cases of people left in a financial mess by mis-sold divorce packages, will-writing software and conditional fee agreements.

Mr Sampson argued that the main risk from the changing legal market comes from “a growing commercial imperative”, which may already have started to play out.

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First, he said, “there is no question that some lawyers are under financial pressure” – causing problems with firms actually paying any redress awarded – which also raised concerns over competition on price. Though to be welcomed in the round, “there are signs that some lawyers are seeking to promise price certainty that they are then unable to deliver”.

Similarly, while Mr Sampson challenged the link between cost and quality, “it is clear that there are some providers who, in their desire to compete, are promising services which they cannot realistically hope to deliver for the price indicated or who are routinely falling below the minimum standard of quality that a consumer has a right to expect…

“Price competition is something to be encouraged and it is a gross simplification to aver that competition necessarily begets unethical behaviour. But a careful watch must be kept in case cheap and cheerful tend into cheap and shoddy.”

Mr Sampson raised concerns about commoditisation. “Again, it would be wrong to argue against such developments, which have huge potential benefits for consumers. However, commoditisation carries with it a degree of risk.” This includes automated systems that are not “truly error-free”, the ability to recognise when cases depart from the norm, and the absence of qualified staff at key points in the process, leading to poor service.

The report highlighted the more immediate funding problems that some consumers may face following implementation of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, and the role of legal expenses insurance in filling gaps.

A YouGov survey commissioned by LeO revealed that at least 40% of people had some type of legal insurance, but 74% did not know or were unsure what financial cover it provided, while 89% didn’t know or were unsure which legal services were excluded.

Mr Sampson said that legal expenses insurance is to be welcomed because it allows people to pursue their claims, but added that “it is possible, if not likely, that the reliance on legal expenses insurance may further confuse the consumer”.

Mr Sampson added: “The arrival of new commercial products is generally to be celebrated as it makes legal services more affordable for most of us.

“However, we’ve seen the damage done to the reputation of the financial sector by the mis-selling of complicated products. The payment protection insurance scandal has cost the banking industry billions of pounds. It would be disastrous if the legal sector exposed itself to a similar risk.”

The annual report said LeO cannot yet be sure about the level of demand for its services – in the year to 31 March 2012, it received 75,420 enquiries, which led to 8,420 investigations. Of the 7,455 cases resolved in the year, far more than originally expected when LeO was set up (35%) required a formal ombudsman decision, while 42% were resolved informally.

LeO found satisfactory service in around 35% of all the cases resolved, while in the final quarter of the year the most commonly ordered amount of compensation was less than £300.

Family law was the main area of practice generating complaints (18%), followed by residential conveyancing (15%), wills and probate (12%), litigation (10%), personal injury (10%), employment (8%) and crime (7%).

LeO came in significantly under budget – £17.3 million, against an agreed budget of £19.7 million.

The report indicated that the signposting mechanism from lawyers to LeO is not working well, with only 35% of surveyed complainants saying that they had been made aware of the service by their lawyer.

 

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