Conveyancers introduce ‘polluter pays’ for cost of Legal Ombudsman

Kumar: A usage fee is fairer

Licensed conveyancers who generate complaints referred to the Legal Ombudsman (LeO) will have to shoulder more of its cost than those who do not, after the change won approval from the Legal Services Board (LSB).

The Council for Licensed Conveyancers will become the first legal regulator to separate out the cost of LeO from its general practising fees and charge 30% of the £686,511 it will pay in 2021/22 to 83 firms on the basis of usage.

Initially the CLC proposed setting the figure at 80% but this was rejected by the LSB, which last month made the highly unusual decision to refuse a regulator’s application for approval of its practising fees.

The CLC submitted a revised application that instead proposed increasing the proportion to 80% over the next four years to give firms time to address their complaints handling.

It also put in place detailed monitoring plans to address the LSB’s concerns that the move risked disincentivising effective complaints handling.

The cost of LeO is met by all the regulated arms of the profession through a levy based on the average number of complaints generated by their communities over the previous three years.

CLC-regulated firms only generated an average of 256 cases – just 4% of the total handled by LeO – but the levy is a significant cost of regulation; the CLC’s own budget for the coming year is just over £2.2m.

The CLC said the issue has become “increasingly pressing” with LeO’s budget jumping 16.5% to £14.5m as it deals with longstanding performance issues exacerbated by Covid.

Until now, all CLC-regulated firms paid the levy through their practice fees, which are calculated purely on the basis of turnover. The decision to separate the cost of LeO will reduce practice fees by an average of 23%.

More than half of CLC practices (62%) do not generate any complaints which are referred to the LeO but will continue to contribute towards its cost in recognition of the consumer protection it provides.

The usage element of the cost will be allocated on the average number of complaints against each firm accepted by LeO over the previous three years. As a result, most CLC firms will see their percentage share of total costs fall.

For those that have generated complaints, the average increase in the cost of the levy will be 17%, but 51 practices – nearly a quarter of all CLC firms – will pay more because they have generated a higher number of LeO cases.

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

The CLC has also increased the number of turnover bands for calculating practice fees from four to nine to improve progression to higher bands as turnover increases allowing more practices to benefit from rate tiering as they grow.

Most firms’ fee rate will be higher this year than what it would have been under the old bandings, but individual licence fees have been frozen.

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 LeO’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 LeO costs and will encourage improvements in complaints handling.

“We will monitor the impact of the new approach on complaints handling.”

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