In its interim report into legal services, the Competition and Markets Authority (CMA) has provisionally found that competition in legal services for individual and small business consumers is not working as well as it might. While there have been some positive developments, such as an increased use of fixed fees for more commoditised services, the CMA has found that upfront information on price and quality is often not available to consumers in order to allow them to compare offers and choose the one that most suits their needs.
This is because few service providers (17%) publish their prices online. It is also difficult for providers to signal quality in this sector and there are a lack of digital comparison tools to make comparisons easier for consumers.
As a result only a minority of individual consumers (22% according to our survey) compare providers before choosing one. This may reduce the incentives for providers of legal services to compete. This lack of competition may mean some providers are able to charge higher prices when substantially cheaper prices are available for comparable services.
The CMA has also considered whether legal services regulation has an adverse effect on competition. Its provisional view is that this regulation does not create significant barriers to entry or distort competition between regulated and unregulated providers of legal services, but that it does impose significant costs on providers that in some cases may be excessive relative to the benefits in consumer protection.
The CMA welcomes the liberalising steps that have already been taken by regulators to address these issues within the current regulatory framework. It is open to more fundamental change of the regime, but at this stage believes that there is a risk that such change might lead to increased regulation and might involve significant transitional costs as well as regulatory uncertainty. It has, however, noted the complexity of the current regulatory framework with its multiplicity of regulators and questions around regulatory independence. In this context, the CMA notes that the government intends to examine the issue of regulatory independence (see notes for editors).
The services covered by the market study include areas such as commercial law, employment law, family law, conveyancing, immigration, wills and probate and personal injury and represent an estimated annual turnover of around £11 to £12 billion. In carrying out its market study so far, the CMA has surveyed individual and small business customers (see notes for editors), analysed existing data and research and heard from a wide range of interested parties.
Senior Director for the legal services market study, Rachel Merelie, said:
Consumers in this market are often not equipped with the right information before they make important purchasing decisions – which often come at critical points in their lives.
Whether it’s buying a property, resolving disputes or getting expert advice on financial and employment matters, individual and small business consumers deserve to get good value when they seek the legal advice and representation they need.
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.
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 long-standing 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. Please email: email@example.com or write to:
Assistant Project Director
Legal services market study
Competition and Markets Authority
London WC1B 4AD
Further information relating to the study, including submissions received so far, will be available on the case page.
Notes for editors
The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law.
- The CMA launched a market study in January into legal services in England and Wales to see if they are working well for individual and small business consumers. In particular, the CMA’s market study has been examining 3 key issues:
- whether consumers can drive effective competition by making informed purchasing decisions
- whether consumers are adequately protected from potential harm or can obtain satisfactory redress if legal services go wrong
- how regulation and the regulatory framework impact on competition for the supply of legal services
The CMA has also today published reports of 2 consumer surveys we commissioned to understand the experiences of individual and small business consumers in the legal services sector. The reports cover quantitative and qualitative research conducted by IFF Research with individual consumers and qualitative research conducted by Research Works with small businesses.
The study has focused on the supply of legal services in England and Wales, recognising that Scotland and Northern Ireland have different legal systems, and that regulatory reform is at a different stage in these jurisdictions. However, the CMA plans to use the outcome of this market study to inform any future consideration of similar issues in these countries. Criminal legal services have not been included because the issues the CMA is considering are less relevant to them.
The CMA has decided not to make a market investigation reference for a phase 2 market investigation as it considers that, through the use of its other powers, it is well placed to address the issues identified in the interim report in a timely way.
The government announced on November 30 2015 that it will launch a consultation on removing barriers to entry for alternative business models in legal services, and on making legal service regulators independent from their representative bodies. It said: ‘This will create a fairer, more balanced regulatory regime for England and Wales that encourages competition, making it easier for businesses such as supermarkets and estate agents among others, to offer legal services like conveyancing, probate and litigation.’ On 7 July 2016, the government published a consultation entitled Legal services: removing barriers to competition which deals with its proposals for removing barriers to entry for alternative business models.
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