The fig-leaf of protection for consumer harm

It is almost two years since the Final Report of the Independent Review of Legal Services Regulation was published (all of the Review’s papers are available here).  The catalyst for the Review was the market study carried out by the Competition and Markets Authority.  The CMA concluded that the legal sector was not working well for consumers.  In carrying out its work, the CMA made several references to consumer harm and detriment.  So, too, did the Final Report. 

However, what transpired in conversations following the Final Report was that the nature of consumer harm was largely being assumed or only illustrated.  A core goal of regulation – the protection of consumers from harm – faced some under-developed but important challenges.  What exactly are the types of consumer harm in legal services, the causes of that harm, the consequences of experienced harm, and the particular remedies that might be available for it (depending on its nature and who caused it)? 

The Supplementary Report to the IRLSR (Consumer harm and legal services: from fig leaf to legal well-being, published today) seeks to answer these questions, and this post is taken from the Preface.

Types of consumer harm

The Supplementary Report identifies two major categories of harm – structural and transactional.  The first arises from the inability of far too many of our fellow citizens to access legal advice and support when they need it.  It is described as ‘unmet legal need’ and, regrettably, it is persistent and growing over time.

Whereas structural harm results from an inability to access legal services, transactional consumer harm arises from the unsatisfactory engagement of them.  Transactional harm manifests itself in a variety of failings or activities of the providers of legal services, including scams and dishonesty, incompetence, under- and over-engineering of services, over-charging, and poor service.

The Final Report emphasised the current ‘regulatory gap’ that creates a sector-specific framework that addresses ‘regulated’ providers (mainly lawyers) but cannot deal with ‘unregulated’, but nevertheless legitimate, providers of many legal services.  The consumer harms identified in this Report can be caused by both regulated and unregulated providers. 

However, the regulatory framework differs depending on whether the provider in question is regulated or unregulated.  In relation to the former, the sector-specific framework of the Legal Services Act 2007 supports a regime of regulators who are able to authorise regulated providers, require those providers to make certain disclosures to consumers and to carry professional indemnity insurance, as well as submit to the investigation and resolution of unresolved complaints by the Legal Ombudsman.

Where harm is caused by unregulated providers, their principal protection arises under the Consumer Rights Act 2015.  While this also imposes certain expectations on providers, the remedies generally have to be pursued by third parties or through private court action by consumers.  Not surprisingly, these burdens mean that enforcement is patchy.

The main emphasis of both the sector-specific and general consumer law approaches is on ‘dealing with’ the provider rather than providing redress directly to the consumer who has suffered harm.  These harms are likely to be continuing unresolved legal issues (because the provider has not dealt with the presenting legal need effectively or at all), economic loss, or consequential detriment for the consumer such as stress, ill-health, delays and lost opportunities.  

For the most part, only economic loss will be remedied directly under the current approaches to regulation – though the Legal Ombudsman has some power to require rectification or compensation.

The Report finds that the fundamental weakness of the current regulatory approaches is their ‘front-end loading’.  They focus more on before-the-event requirements that reduce the prospect of harm, but leave consumers exposed and without redress when they try to pursue after-the-event redress for the actuality of harm suffered.

The current approaches also emphasise taking action against delinquent providers, which are usually undertaken by third-party regulators with limited powers to offer redress directly to individual consumers, or by the consumers themselves in (expensive and uncertain) legal action. 

Types of consumer

How individual consumers react to their presenting legal needs, and then seek – or fail to seek – advice and support, will depend on what type of consumer they are and their own legal capability.  This Report identifies three broad types of consumer: the fully informed, rational consumer (broadly, the homo economicus of neoclassical economics), the ordinary consumer (broadly, the ‘average’ consumer of consumer protection legislation), and the vulnerable consumer.

Existing research of consumer behaviour suggests that we are all, in some way, likely to be vulnerable when addressing our legal needs.  In these circumstances, vulnerability is universal and not exceptional.  Regulation should therefore recognise this universality and not seek to treat vulnerable consumers as a separate sub-group.

When types of consumers are combined with degrees of legal capability, the Report suggests that four states of consumer engagement emerge: the empowered consumer, the self-representing consumer, the disengaged consumer, and the excluded consumer.  Unfortunately, for those who have low to medium legal capability, the tendency will be towards disengagement and exclusion.  This translates into unmet or unresolved legal needs for most people.

Even more unfortunately, the Report also suggests that the current structures of consumer protection (whether applying to the regulated or the unregulated communities of providers) exacerbate – or, worse, possibly even cause – this observable tendency towards disengagement or exclusion.  In particular, their emphasis on the prevention of harm, sanctions against providers, transparency and disclosure requirements that increase the cognitive burdens on consumers, and reliance on consumers to assume the risk and cost of personal action when things go wrong, all contribute to an overwhelming and daunting sense of challenge.

Towards ‘legal well-being’

Against this background, the Report offers an alternative approach.  In affirming the conclusions and recommendations of the Final Report, it advocates for a shift in emphasis in legal services regulation.  Primarily, it seeks a move away from the pursuit of a negative (the avoidance of consumer harm) to a positive.  The outcome would be a positive state of ‘legal well-being’.

Such a state is not so much about securing the absence of harm as about achieving the opposite of it.  The concept of legal well-being imagines a state in which consumers can have confidence in their choice of legal advisers without burdensome enquiry about their regulatory status; in which the legal sector offers ease of access to advice, representation and document preparation; in which enquiry, engagement and redress are similarly less burdensome processes; and through which the legitimate participation of citizens in society is supported, in accordance with their legal rights and duties.

In promoting such outcomes, regulatory policy would need to accept that vulnerability is not exceptional, that caveat emptor (buyer beware) has no role in the engagement of legal services, that disclosure creates more difficulties than it solves, that competition in provision needs to be encouraged but cannot be relied on to result in fair dealing without some regulatory underpinnings, that legal aid, pro bono services and public legal education cannot close the gap in meeting unmet needs, and that qualified lawyers are not always the best providers of legal services.

In any consideration of whether consumers do, or are likely to, suffer harm in their use of providers of legal services, it is difficult to draw clear separating lines between the ideas (and ideals) of addressing unmet need and the challenges of ‘access to justice’.  The concept of access to justice is closely linked to the constituent concept of legal need.  In broad terms, legal need arises whenever a deficit of legal capability necessitates legal support to enable a justiciable issue to be appropriately dealt with.  

A legal need will be unmet if a justiciable issue is inappropriately dealt with as a consequence of effective legal support not having been available when necessary to make good a deficit of legal capability.  If a legal need is unmet, there is no access to justice. 

The persistent and increasing volume of unmet legal needs in England & Wales (and beyond) is arguably the greatest structural challenge facing the regulation of legal services and the performance of the legal sector in its widest sense.  While the question directed to me following the publication of the Final Report (‘Where is the evidence of consumer harm?’) is apparently reasonable and legitimate, it turns out to be a red herring.

When so many citizens do not know that they have a legal need, when so many citizens who have legal needs turn away from seeking help from lawyers, when those who are dissatisfied with their use unregulated providers of legal services have no meaningful route to complaint or redress, when those who are dissatisfied with their use of regulated providers take no action and join the ranks of ‘silent sufferers’, it is hardly surprising that those most in need of support have no voice … and so there is no evidence.

Even looking for ‘disproof’ relies on proving a negative (there is insufficient harm) rather than securing a positive (public and consumer confidence in the rule of law and legal services, as well as legal well-being).  

Time for action

The principal structural recommendation of this Report acknowledges that more lawyers, more pro bono services, more legal aid funding, more public legal education, more sandboxes, and improved legal capability will not – even collectively – close the gap between met and unmet legal needs.  Nor can we continue to allow complexity of laws and legal services regulation and the relative inaccessibility of regulated legal services – whether for financial, social or cognitive reasons – to force people into either doing nothing or using unregulated providers.

The structural recommendation, therefore, is to extend the scope of regulation to allow competent providers who are not legally qualified to offer legal services in a sector-specific regulated environment.  This might not fully close the gap between met and unmet need but it stands a better chance of slowing or reversing the increase in it than current approaches.

An increase in the number of regulated providers would also allow the natural forces of competition to influence market discipline, quality, efficiency and prices, to the benefit of consumers.  However, this Report does not support free and unconstrained competition.  The contribution of legal services to the rule of law and the fabric of society, and the vulnerability of the vast majority of the users of legal services, are too important to be left at the mercy of unfettered competition.

Accordingly, to advance the greater well-being of those who engage providers of legal services, this Report (reinforcing the conclusions and recommendations of the Final Report) also advocates for a single point of entry for regulation, registration and complaints about conduct and service, and the extension of mandatory consumer dispute resolution to complaints against all providers of legal services.

On closer examination, the ‘protections’ of the current framework for the regulation of legal services turn out to be little more than a fig leaf.  The main force of regulation is applied to preventing harm and to dealing with delinquent providers rather than for the direct benefit of consumers who have actually suffered harm.  

Further, although this Report focuses on harm caused to individual consumers, there is also little in the current regulatory framework that supports the pursuit of collective redress for one-to-many consumer harm that could be caused, say, by scams, dishonesty and mistakes perpetrated by one provider on many consumers – especially through the increasing use of online services. 

If citizens cannot readily and effectively enforce or defend their rights, if their health and well-being are adversely affected by the effort of doing so, if they do not feel that their quality of life is enhanced by their successful interaction with the law (even in a positive life-event, such as moving home), then it does us as a society little credit to stand by and do nothing to improve their experience.

We believe that in England & Wales we have the best legal system in the world, and some of the best lawyers.  We are right to believe that.  But we must also accept that our regulatory framework that oversees it is an emperor with precious few clothes on.

One thought on “The fig-leaf of protection for consumer harm

  1. Pingback: Ongoing competence: the LSB’s mission impossible? | StephenMayson

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