Legal Services Consumer Panel calls for Referral Fees to be Revealed and Regulated – 26th May 2010

The Legal Services Consumer Panel has produced a report this morning calling for key changes to referral payment rules.
Focusing on conveyancing and personal injury the report has found that nearly a quarter of consumers are referred to their lawyer but only 20% of solicitor firms in England and Wales having referral arrangements in place.
The report notes that conveyancing referral fees are typically between £100 and £300.
The Consumer Panel states its vision as a market where everyone can access high quality and affordable legal services that meet their needs and that referral fees go to the heart of this issue because of the potential influence on:
–         Independence of advice
–         Access to Justice
–         Competition
The Panel expressed reservations about referral arrangements and considers action needs to be taken to “tackle concerns” which do or may cause harm to consumers. The report does not seek an outright ban.
In summary the report comments on two topic areas relevant to conveyancers:-
Independence
The Panel found that law firms are not over reliant on work coming from a single introducer and that lack of reliance militates against the theoretical ability for introducers to exert undue influence. The report goes on to indicate that the evidence does not substantiate concerns that introducers may exert undue influence.
The panel is concerned that:-
–         Closed panels send work to the firms that are prepared to pay the highest referral fees rather than based on an objective need of the client.
–         There is undue pressure is put on consumers choice of conveyancer by estate agents to use their preferred conveyancer.
–         Law Firms and estate agents persistently fail to comply with the disclosure rules.
Competition
The report comments that competition occurs at two levels within legal services. Firstly there is competition between law firms for work and secondly between law firms and introducers to attract clients.
The report does not find that referral fees impact on conveyancing quality, and repeats the argument from the prior LSB report that conveyancing fees charged to consumers are lower where referral fees are paid
Recommendations:-
–         Referral fees continued to be permitted but that there is a review in three years
–         LSB should lead a collaborative initiative to achieve a consistent set of regulatory requirements within and without the legal services sector.
–         LSB should conduct surveys to measure the impact of referral arrangements on client satisfaction.
–         LSB should consider further measures to improve transparency e.g. obtaining the clients written consent to the referral payment.
–         Approved Regulators should systematically collect data of referral arrangements
–         Approved Regulators should consider prohibiting firms from entering into bidding auctions for work.
–         Approved Regulators should issue guidance on when a dependency on referral arrangements causes a risk of conflict
–         Licensing Authorities should impose disclosure rules for all types of ABS
–         OFT should consider investigating whether competition in relation to panel arrange is working effectively
–         OFT should provide guidance on the likely application of general consumer law to referral arrangements
–         OFT should conduct mystery shopping of pressure selling by estate agents.
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