Consumers not empowered enough to drive competition in legal market, says study

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8 January 2013

Consumers: lack of price transparency in legal market

Regulators face an “uphill struggle” to put consumers in a position where they can be useful in helping to drive competition in the legal services market, a study has warned.

Asked by the Legal Services Board to assess how regulators of the legal profession can help consumers play a “more active role” in the market, initial findings by the Legal Services Consumer Panel (LSCP) suggest consumers are “currently not very empowered” and lack confidence.

In the first of two background papers on the subject, the panel said consumers are also not trusting of lawyers in general, are not knowledgeable about their legal rights, do not shop around much, and are unlikely to pursue a complaint about a lawyer. These limitations apply even more so to ‘vulnerable consumers’.

The LSCP also observed that the signposting rules which require lawyers to inform prospective clients about their rights to complain to the Legal Ombudsman, are “not working effectively”.

Consumer empowerment is an idea backed by the Coalition government. The theory is that if consumers make the right choices and demands of suppliers of goods and services, they will reward good, innovative businesses which will benefit the economy as a whole.

The panel found that the factors leading to consumers being empowered when accessing any services are complex and involve such things as state of mind and decision-making skills. Another key factor is the institutions that “support customers to shape markets”, such as the competition, regulatory and consumer protection regimes.

It cautioned there are “inherent limits” to any policies designed to empower consumers that “are important to respect”. These include the fact that consumers do not always behave in an “economically rational” way, that legal services are sometimes “distress purchases” and that the market suffers from a “lack of price transparency”.

Meanwhile, vulnerable consumers’ are limited by “wider social conditions”, but their empowerment can be improved by “targeted intervention”.

The panel concluded: “Given the inherent characteristics of the legal services market, we caution about relying too heavily on consumers to drive competition. Consumer representatives emphasise that perceptions of consumer protection are a precondition of people being willing to take risks and play the more active role in markets envisaged for them… the consumer protection framework [will need to be] fit for purpose in order to give consumers justified confidence to act.”

Evidence gathered by the LSCP for the study suggested that consumers of legal services, along with those in other business sectors, lacked confidence, although there were some signs of progress. “Empowering consumers will be an uphill struggle, although our research highlights some small signs that consumers are starting to become more active in the market.”

The panel will publish a second paper later this month, which will look at initiatives in other sectors in order “to provide legal services regulators with a menu of options and good practice examples”. It will also review existing empowerment-related activities by regulators and the role of industry and the advice sector.



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