Slaw.ca Legal Ethics Column, Aug. 11 2017.

http://www.slaw.ca/2017/08/11/personal-plight-mending-the-market/

“Personal plight” legal services are those provided to individual clients whose legal needs arise from disputes. Personal plight areas such as family law, refugee law, and human rights are the site of Canada’s worst access to justice problems.

The market for personal plight legal services functions poorly, as Malcolm Mercer and Amy Salyzyn have shown in this space. A key problem, I suggest here, is that it is too difficult for consumers to shop intelligently. This undermines healthy competition and legal professionalism, in addition to access to justice. Regulators can and should mend the market for personal legal services.

Mystery Shopping

Suppose shopping for groceries were like shopping for personal plight legal services. The quality of the alternatives would be very difficult to judge before, or even after, purchase. You would not shop once per week, but rather once every few years or more, and so you would lack personal past experience to guide you.

The prices on offerings would not be fixed dollar amounts; they would vary depending on unpredictable factors such as outcome or time spent by the vendor. Even this price information would not be displayed below each alternative. You would have to ask a store employee for each price, and you’d usually have to describe your need in detail before getting an answer.

Finally, there would be no supermarket displaying a wide variety of options. Each brand would be sold in only one store. You’d have to visit a different store for each item you wished to add to your comparison pool.

This is the reality for most people trying to shop intelligently for a family, personal injury, or employment law firm.

The Economic Diagnosis

In economic terms, there are two distinct problems that make shopping intelligently for a personal plight legal services more difficult than shopping for groceries.

The first problem is high search costs. For some people it is arduous if not impossible to find even one firm that is both acceptable to the consumer and willing to accept that consumer as a client. Finding multiple options and comparing them — a baseline expectation of consumers in a modern market economy — is even harder.

The second problem is information scarcity. Suppose a diligent consumer visits five different family law firms, tells her story to five different lawyers, asks the same questions five times and takes copious notes. Even after spending all this time, she may still have little idea about how the firms’ final bills will differ or which firm will be easiest to work with. She is even less likely to reach solid conclusions about which firm would get her the best result. Less diligent consumers — people like myself who want to do their shopping with a single trip to Amazon or Walmart — will know even less about their options if they bring this approach into the personal plight legal services marketplace.

Unique Challenges to the Personal Plight Market

Of course, most professional services markets lack the transparency and comparability that characterize markets for goods such as food. However the personal plight legal services market faces three unique challenges not present in other professional service markets:

• Because personal plight consumers are individuals (as opposed to corporations or state bodies), and typically only rarely in need of legal services, they lack the significant advantages conferred by experience in the market.
• Because the legal needs are contested, the labour requirements to resolve them are unpredictable. Therefore, especially in North America, firms struggle to offer pricecertainty to the consumer.
• Personal plight legal needs often arise from traumatic life events (e.g. personal injury, incarceration, divorce). The cognitive and temporal costs of intelligently shopping for a law firm are harder to “afford” when a pressing life crisis is simultaneously taxing those same resources.

Traditional Market Mechanisms

These problems are not new. Buyers and sellers of personal plight legal services have found ways to connect despite high search costs and information scarcity. Referral is still king: most personal plight retainers are still formed after a third party provides the name of the firm to the client. Consumer reputation (perceptions the consumer had about the firm before the consumer’s legal need arose) is also important. Advertising, defined broadly to include any “publication of an announcement in a public medium,” includes the now-ubiquitous firm websites as well as the more controversial billboard and radio campaigns.

Nevertheless, search costs remain high and useful price and quality information remains scarce. Many people — especially disadvantaged people — do not have access to high-quality referrals. Having heard something good or bad about a personal plight law firm may not be helpful, if the report comes from a past client who used the firm only once and may not be in a position to evaluate it accurately. Law firm advertising, meanwhile, very seldom provides any useful information whatsoever about the price or quality attributes of the advertising firm.

The difficulty of shopping intelligently is an access to justice problem in of itself. However it also undermines healthy competition. Firms that that are not being effectively compared by consumers in terms of quality and price attributes face diminished incentives to improve quality, create innovative new service packages, and deliver value for money. Legal professionalism – in the basic sense of obligation to serve clients as effectively as possible within the bounds of the law – would also be favoured by a market that provided the best rewards for personal plight firms that actually do so.

Can Regulators Mend the Market?

To shop intelligently for personal plight legal services may never be as easy as it is to shop intelligently for groceries. Still, regulators can make it easier than it is today. The Law Society of Upper Canada has already this year improved regulation of referral fees and advertising. These traditional market mechanisms should now work more effectively for consumers of personal plight legal services.

To reduce search costs and encourage comparison shopping, the law societies’ online practitioner directories and referral services can be built out into full-featured marketplaces along the lines of TripAdvisor and Amazon. Standardizing retainer contracts for personal plight matters would assure consumers that they will get the same set of fair terms from each firm on issues such as disbursements and calculation of contingency fees. This would improve market function, by making it easier to compare firms in terms of price and quality.

Quality Information

Private sector entrepreneurs have sought to fill the quality information vacuum. However, public-interest regulators are uniquely well-placed to gather and disseminate objective information about practitioners and firms. Possibilities include:

• “Badges” on law society directory entries indicating, for example, that a lawyer’s bar exam score was in the 90th percentile, or that a paralegal has practiced for 10 years without any disciplinary complaints
• Disclosure to the public of all substantiated complaints about a licensee, including malpractice suits settled for more than a certain amount
• Systematic reporting by judges and tribunal adjudicators to the regulator regarding the quality attributes of advocates appearing before them
• Surveys by regulators of past clients regarding the service quality of the lawyers who served them
• Per Amy Salyzyn’s proposal, information for the public about the “strength of the systems that lawyers have in place to ensure good quality service to clients.” Regulatory audits could examine retainer letters, tickler systems, and client communication protocols. Badges or certifications based on such factors could be awarded to the firms with the best systems

Price Information

Gathering and disclosing price information is more challenging, especially where the prices are hourly rates or contingent percentages. A relatively aggressive approach would require firms to disclose complete pricing information on the online directory.

However this can create new problems even as it solves old ones. Price information can be misleading to inexperienced consumers. A lower hourly rate is no bargain if the lawyer will take twice as long to finish. A lower contingency rate is no bargain if the firm will only recover half as much. Unless accompanied good quality information, price information can create a “race to the bottom” effect that seriously undermines quality.

Economists also warn that price transparency can, in some cases, lead to collusion among firms. Suppose you learn from the Law Society directory that every other firm in town charges at least $300/hr. Does this encourage you to undercut them at $280 and seize market share? Or does it discourage you from going down to $280 for fear your colleagues will punish you, for example by withholding referrals?

Requiring firms to disclose prices on their own websites would be a light-touch way to make informed shopping easier for consumers. Another option is for regulators to gather comprehensive price information from firms, but refrain from disclosing it all to the public. Instead, the information could be aggregated to create benchmark average prices for certain services. These benchmarks could be revealed to the public, and used to inform regulation of prices e.g. through the legal fee taxation and assessment processes.

The Path Forward

The market for personal plight legal services functions poorly, and regulators have a key role to play in mending it. England & Wales is the world leader in understanding and seeking to improve the market for personal legal services. In that country, competition bureaus and state regulators are pursuing this project along with lawyers’ self-regulatory organizations. We should be encouraged by signs that our law societies are starting to follow suit.