Legal Ombudsman scheme rules revision

The Legal Ombudsman is about to make significant changes to its role, widening its current powers and coming into line with the role of the Financial Ombudsman.

The Legal Ombudsman (LeO) recently ran a public consultation as part of the Scheme Rules review which was scheduled to take place from March 2012, 18 months after the birth of the LeO. A number of changes were recommended and have been approved. Some of the recommended changes require a statutory instrument; these proposals have been submitted to the Lord Chancellor and are awaiting approval.

Changes

The four principal changes which are to be implemented are:

1. Increasing the financial limit for compensation to £50,000 2. Increasing the time limit for the LeO to consider a complaint 3. Expanding the LeO's jurisdiction to include complaints from prospective clients 4. Removing the 'free cases' allowance

Findings of the Consultation

Increasing the financial limit

In the majority of cases referred to the LeO, the financial award amounts to less than £1,000. However, the LeO chose to consult on an increase in the level of compensation which they are permitted to award as they have found the upper limit of £30,000 to be insufficient in a small amount of cases. In particular, the LeO cited straightforward conveyancing or probate matters which fitted into this category.

The consultation found that an increase in the limit would make a complaint to the LeO more of a viable alternative to bringing a claim through the Courts.  Some respondents to the consultation supported a much bigger increase in line with the Financial Ombudsman Service's (FOS) limit (£150,000). However, whilst other groups, including the SRA, supported an increase they did not think it should be so substantial. The increase to £50,000 (not including interest, costs or fees) is therefore regarded as a 'good compromise'. Given that the LeO was already willing to increase the limit only 18 months after inception, it is likely that this will be a short lived compromise. Our view is that this should be of concern to solicitors, particularly as the LeO, a lay organisation, takes a non-legal and informal approach to assessing complaints.  Increasing the time limit for making a complaint

Following the consultation, the LeO resolved to expand the scope of complaints which they have the power to consider from one year to six years since the alleged act or omission took place, or three years since the complainant should reasonably have known there was cause to complain.

The key aim of consulting on an increase in the time limits within which a complainant can bring their complaint to the LeO was to harmonise the scheme with the Courts and other ombudsman schemes, particularly the FOS.  The LeO state that they spend a great deal of time and resources dealing with issues relating to time limits and that the existing rules are too restrictive. One of the main points made within the consultation in support of such an extension was that it often takes consumers, who lack legal knowledge, longer to make a complaint about a legal service provider. Against an increase, the point was made that it would impact professional indemnity insurance premiums, discussed further below.

The LeO concluded that they routinely deal with complaints where the date the poor service was discovered is less than a year but the complaint is much older and therefore they do not think this change will have a significant impact. However, only time will tell if this change in fact results in an increase in complaints being considered by the LeO.   

Expanding the LeO's jurisdiction

Following the consultation, the LeO recommended an amendment to the rules allowing them to consider complaints from prospective customers. This relates specifically to solicitors refusing to act for a prospective customer on discriminatory grounds or customers complaining about solicitors over-marketing their services.

Under the current scheme rules, a complainant has to have actually received a service from a legal provider before the LeO can accept the complaint. The changes were prompted by an increase in 'unreasonable and persistent' cold calls to consumers from legal practitioners offering legal services. The consultation also touched upon the fact that the legal sector is becoming more commoditised and therefore competitive marketing tools are being used. It has already been announced by the Ministry of Justice that the LeO's jurisdiction will be expanding to include case management companies. This expansion will mainly have an impact on firms whose common practice is to call consumers and offer their services, such as firms specialising in personal injury or payment protection insurance claims. Although this might not have a significant impact on the majority of firms, it does show that the LeO is prepared to expand its jurisdiction.

Removing 'free cases'

Currently, firms have an 'allowance' of two free cases per year. Further cases are then charged at £400 per case where the LeO has finalised an investigation and a cause for complaint is found. However, very few firms have been exceeding this allowance. The LeO also states that quite frequently fees are waived if the customer service is found to have been adequate.  The case for removing the allowance for free cases was that firms are now much more confident at dealing with complaints. There is probably also an element of a need to increase the fees paid to the LeO. This will not have a significant impact on the majority of firms who will only be likely to experience a few complaints a year.

The wider context

The proposed changes, on which the LeO consulted, indicate that the LeO's aim is to harmonise their powers and principles with the other complaints services, in particular the FOS. This reflects the regulators' anticipation of the impact of Alternative Business Structures (ABS), whereby regulated organisations will provide legal services alongside non-legal services such as accounting. There is a clear logic for regulation between professional services to be unified if/when ABSs become common place, as one firm may find that it is regulated by a number of separate regulatory bodies and regulators will have to deal with hybrid cases. As a part of the consultation, the LeO note that increasing the financial limit for compensation makes complaining to the LeO a viable alternative to using the Courts, although clearly the amended compensation limit of £50,000 is a compromise and still falls short of that of the FOS.

Widening the LeO's jurisdiction to allow complaints from prospective customers and substantially increasing the time limits which a complainant has to make a complaint further reflects the general mood of reforms taking place in the legal sector.  By bringing the LeO's powers in line with the Court's in relation to time scale, the LeO hopes to widen its ambit at the same time that the Jackson reforms come into play. More claims being dealt with by the LeO (and schemes like the FOS generally) will lessen the pressure on the Court and tie in with Jackson's aims of reducing legal costs.

However, solicitors are likely to perceive these changes as generally adverse. Extending the LeO's non-legal, "customer" focused approach to a wider class of cases and increasing the compensation limit seems likely to result in an increase in the cost of dealing with complaints. This, in turn, may lead to an increase in PI premiums at a time when many firms are already struggling to make ends meet.