Consumer complaints: don't be complacent but there is no need to panic

Few would disagree that the Legal Ombudsman (LeO) has been the stand-out success of the Legal Services Act reforms.

One of the three central pillars of the act, the other two being regulatory independence and alternative business structures, LeO has been the source of remarkable little controversy, even if individual lawyers and members of the public may have had their problems.

Arguably, LeO has had less success in simply encouraging people to complain more than they did in years gone by. YouGov research commissioned by LeO and the Legal Services Consumer Panel showed that law firm clients
felt powerless to complain.

Client fear

Along with the fear that lawyers apparently engender in clients, they were closing off a key element of customer feedback: complaints. Research in many sectors has shown that a client pleased with how a complaint is resolved is in many ways the best client to have.

However, YouGov found that lawyers have failed to adapt their practice to modern customer demands and furthermore that clients are confused about the complaints system.

LeO costs lawyers around £13m a year, less than half of what they were paying to run the previous in-house schemes across multiple regulators. At the same time, at £2,168 per complaint in 2012–13, it is more expensive than expected and was recently criticised for this by the consumer panel.

LeO has been addressing the issue. Cost per complaint for 2013–14 is expected to come in at £1,938 – at the price, in part, of 44 redundancies – and its recently published predictions of 2014 –15 anticipate a further fall to £1,734.

Among other initiatives, the organisation is to explore options for effective earlier intervention, such as mediation, arbitration, fast-track resolution, and first-tier complaints support.

But the bigger win to reduce expense could be for LeO to share its fixed, infrastructure costs across a wider range of professions.

Last year, LeO started a ‘conversation’ with stakeholders about significantly expanding jurisdiction. First, it wants to capture complaints against the 130,000 unregulated providers who deliver legal services.

Second, it has raised the prospect of becoming the complaints body for a wide range of professionals where no alternative dispute resolution (ADR) scheme currently exists, such as chartered accountants, some property professionals, tax advisers and architects.

This has been given impetus by recent EU legislation. By 2015, the UK must make ADR available for all complaints by consumers against traders under most contracts for goods and services – including professional services. How
the government is going to deal with this is not
yet known.

Research by Northumbria University published by LeO last year highlighted the confusing nature of legal services provision and redress, finding consumers ill-equipped to choose between different providers with different levels of protection, confused as to how the market works and unwilling to pursue redress when dissatisfied.

Threefold market

It broke the market down into three components: first, the core market of authorised lawyers; second, the alternative legal services market consisting of people providing legal advice without needing to be authorised, such as non-practising barristers and employment advisers; and third, the likes of accountants and surveyors who provide ancillary advice to their main work “which may be perceived by the consumer as legal advice”.

These are further complicated by alternative business structures, online services and services under a single brand that are actually being provided by different entities, LeO said.

The Legal Services Act 2007 allows LeO to ask the lord chancellor for a voluntary scheme covering legal services beyond just the reserved activities – voluntary because businesses would have to choose to join it. This option is already being considered in relation to will-writers.

A discussion paper published by LeO put forward the notion of a restructured operation covering other professional services – either on a voluntary or compulsory basis – as one way for the government to meet its EU obligation.

This could provide, “[clarification] for consumers, consistency across professional sectors, [and] the benefits of using an established organisation rather than creating a new one.”

We have seen the first move towards this with LeO taking over responsibility for handling complaints against claims management companies.

If LeO is to achieve all its goals, then it will have to prove to the government and others just how fit for purpose it is. And that means doing the best possible job with those it currently oversees, and to be sure it will not be afraid to use its new powers, which took effect from 1 February 2013.

These included:

• allowing complaints from prospective clients;
• raising the compensation limit from £30,000 to £50,000;
• ending the system of two ‘free’ complaints and charging lawyers for each upheld complaint and;
• n increasing the time limits for accepting a complaint from one year to six years from the date of act/omission, or three years from the date the complainant should reasonably have known there were grounds for complaint.

We have been warned. The obligation is on lawyers to deal with complaints properly themselves and to signpost customers to LeO if they can’t resolve the issue. LeO has also tried to appeal to solicitors’ bottom line to persuade them to take complaints more seriously.

Research by LeO in January claimed law firms could increase their profits by up to 3 per cent this way, arguing that firms do not appreciate the importance customers attach to complaints handling, meaning they only see it as a cost.

Enhanced reputation

While recognising that there is a cost to improving complaints handling, the research found that this is more than offset by increased customer retention and acquisition as a result of an enhanced reputation, as well as cost efficiencies and improvements resulting from the data collected from complaints.

A year into the world of COLPs and COFAs, regulatory requirements in relation to complaints should be in place. Client engagement letters, terms of business, websites, etc should all be reviewed to ensure they are compliant.

Risk and compliance policies should be in place where all employees, not just fee-earners, are properly aware of their contents and responsibilities. Training should have been given to all existing employees and to new employees on induction, with refresher training and updates as required.

Being trained to recognise complaints when they are made (which is not as simple as it may seem) and dealing with them quickly should be a priority. This involves giving the correct person within the organisation responsibility for dealing with complaints who can sometimes turn them around.

Particular attention needs to be paid to the possibility of complaints from prospective
clients. While we can refuse to act, firms would
be well advised to keep records of the reason
for not taking on a matter. This data, if analysed, can be used to the benefit of the firm, but
ensure that you are not in breach of data protection requirements.

LeO made a significant intervention into the world of conditional fee agreements (CFAs) at the start of 2014, announcing that complaints involving ‘no win no fee’ had led to it ordering remedies totaling nearly £1m in the previous year, which it attributed to the harsh post-Jackson operating environment for law firms.

Altogether, 600 CFA-related complaints were made to LeO, 6 per cent of the total. Of these,
70 per cent were in personal injury.

While acknowledging that CFAs were welcome as access to legal aid diminished, and could “offer customers an affordable and simple solution”, LeO said there was evidence that firms operating in an “increasingly aggressive” market were prioritising volume over the rigorous vetting of cases.

LeO said it had warned regulators that ‘no win no fee’ presented significant potential risks to consumers: “A business model which consistently overvalues the chances of success can drive lawyers into unethical practice in order to avoid financial meltdown.”

Many consumers were not aware, for example, that costs may have to be payable from damages following the removal of recoverability. LeO said, “We have seen cases where people have been hit with surprise costs after winning their case. Usually, this entails confusion around the
amount payable towards a success fee, but can also involve payment of disbursements and
the other side’s costs.”

Despite the serious nature of the issues
raised, the regulators have yet to issue a formal response to LeO’s report, an issue LeO is unlikely to let go.

LeO also queried whether the ‘no win no fee’ label should continue to be used. There has been a trickle of complaints to the Advertising Standards Authority (ASA) arising from personal injury adverts. The ASA warns that ‘no win no fee’ claims can be misleading because sometimes the client is liable for undisclosed costs, such as insurance, if they lose their case.

LeO is also looking at what types of complaints it should accept from non-clients, supported by case studies published by the consumer panel that showed lawyers harassing third parties over alleged debts, violating their privacy and doling out abusive treatment in court. That will be yet another new area of compliance to worry about.

It is all potentially scary, but the evidence
shows that solicitors are generally dealing with complaints pretty well. From the start, there have been fewer complaints to LeO than expected.

This is no reason for complacency – reluctance to complain is undoubtedly part of the picture – but it means that while practices must take this very seriously, there is no reason to panic when
a complaint comes in. SJ

Lesley Graves is managing director and Andrea Cohen a solicitor at Citadel Law