Consumers still in the dark, CMA interim legal services report finds

Competition in legal services for individual and small business consumers in England & Wales is still not working as well as it might, according to provisional findings by the Competition & Markets Authority.

In its interim report on its market study, launched in January, into how legal services are working for businesses and consumers, the CMA concludes that lack of comparative information on price and quality continues to prevent consumers from comparing offers and choosing the one that most suits their needs.

The services covered by the market study include commercial law, employment law, family law, conveyancing, immigration, wills and probate, and personal injury. The report states that while there have been some positive developments, such as an increased use of fixed fees for more commoditised services, upfront information on price and quality is often not available.

While provision of such legal services south of the border has been liberalised, the CMA found that only 17% of service providers publish their prices online. And as there is still a lack of digital comparison tools, only a minority of individual consumers (22%, according to its survey) compare providers before choosing one.

“This may reduce the incentives for providers of legal services to compete”, the CMA states. “This lack of competition may mean some providers are able to charge higher prices when substantially cheaper prices are available for comparable services.”

There is little indication in the report that liberalisation has in itself brought greater competition, and the CMA notes that unregulated providers have so far had "only limited success" in winning market share – again perhaps through lack of consumer awareness rather than lack of trust in unregulated providers. It believes however that the current system of regulation, while not distorting competition between regulated and unregulated providers, “does impose significant costs on providers that in some cases may be excessive relative to the benefits in consumer protection”.

While welcoming steps being taken by regulators to address these issues, and open to more fundamental change of the regime, the CMA believes that there is a risk at present that such change might lead to increased complexity and cost at least in the short term. But regulatory reform "might helpfully complement" other reforms, and the CMA remains "open to the possibility that a move to an alternative regulatory model might lead to benefits".

It is now inviting views to help it develop detailed proposals to improve transparency of price and service quality both before and after the consumer chooses a service provider; and to improve awareness of factors such as the different types of service provider, the differences between regulated and unregulated providers, and how to make a complaint. It does not see the need for a market investigation reference; rather, it will engage with Government, regulators and industry bodies "to identify effective remedies in a timely way... to address the issues that we have identified".

Rachel Merelie, senior director for the legal services market study, commented: “Without greater transparency, individual and small business consumers find it difficult to compare and choose providers of legal services. For many of them this is an infrequent purchase and a lack of experience or prior knowledge makes it very challenging to assess what represents good value.

“As a result, they tend to rely on recommendations from family or friends in choosing providers without checking for themselves what the market has to offer. This is unlikely to drive effective competition.”

She added: “The lack of competition may remove a crucial incentive for such firms to compete on price and quality as well as innovate and may help to explain why there have been longstanding concerns over the affordability and accessibility of legal services.

“Our focus now will be on how we can drive competition by improving the information that providers make available to consumers both before they buy – in order to help them shop around – and during the process so that they aren’t hit with unexpected costs. We will also look at measures to improve the existing independent information channels that are available for customers.

“We will work with government, regulators, representative bodies and consumer groups to look at practical ways we can help consumers for these services. This includes considering recommending that providers be required to publish price information in future.”

The CMA is now seeking views on its interim findings and must publish its final report by 12 January 2017. Comments should be made in writing by 19 August 2016.

Click here to access the interim report.