LeO: regulation struggling to keep up with online legal services and other innovations

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By Legal Futures

29 June 2011

Online services: firms not revealing true cost

The overlap between regulated and unregulated legal services is causing consumer confusion, with online services emerging as a particular problem, the Legal Ombudsman (LeO) has warned.

The ombudsman told the Legal Services Board that it needs more clarity about the limits of its jurisdiction as the market is already changing and innovating even before alternative business structures (ABS) come into being.

As an example, it said there are an increasing number of cases where a consumer thinks they have bought a service of a lawyer, when in fact it is a claims management company beyond LeO’s reach with which they have a contract.

It can take time and effort to establish “who is a lawyer and therefore falls within our jurisdiction”, meaning it is “little wonder that consumers of services are unclear and confused about how to seek help and redress in what remains a complex system”.

LeO was responding to a Legal Services Board consultation on how the latter will ensure that regulatory standards and performance are effective. The problems encountered so far show how “business innovation can, and is, happening independently of regulatory structures and frameworks”, the ombudsman said.

On the growth of online services, LeO had “some evidence of an increasing number of ‘phoenix’ firms, who close and re-open as different structures, leaving the fall-out for their individual customers”.

It continued: “We are also seeing evidence of firms, who, perhaps inspired by the cut-price airline market, offer attention-grabbing headline prices, only for many add-ons to increase the final price to significantly different levels. The key difference seems to be that, unlike the process of checking in at an airport, your average consumer is unlikely to be aware of what are the normal steps in a conveyancing or probate transaction, and so are unlikely to be aware of what is a fair price for this work.

“Online firms are also engaged in sub-contracting out the provision of the reserved legal activity, meaning that we see many layered and complex business structures, some of which can fall within regulation, and some without. These must be commercially viable, given that we are starting to see them more regularly on the open market.”

LeO said consumers deserve clarity about when and why they are able to access redress for some of these business models but not for others. “The advent of ABS will add another piece to this emerging jigsaw; we agree it provides an additional mechanism for regulated lawyers to look to innovate and develop their business models.

“However, the complaints we are seeing tell us that companies are finding ways to do this without the regulatory framework outlined in your discussion paper, leaving evidence of consumer confusion about how to find help when things have gone wrong.

“Rather than just being part of a changing legal services market, it seems that what we are seeing is a changing approach to how more complex consumer services are delivered more generally – a joining up across financial, property, accountancy and other services that needs a less segmented response to regulation and redress.”

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