The Legal Services Board (LSB) has decided against introducing guidance on how regulators should mitigate the risk of damages-based agreements (DBAs) being mis-sold.
Strategy director Crispin Passmore said it has accepted the assurances from the frontline regulators – such as the Solicitors Regulation Authority and Bar Standards Board – that the risks associated with DBAs will be tackled through their regulatory frameworks and focus on specific risks.
In February, Mr Passmore wrote to the regulators to express the LSB’s doubts about the ability of unsophisticated consumers to choose and use DBAs or compare different DBAs, and asked for their views on how they would approach the issue.
In a letter sent out this week, he said the board was disappointed with the time it took for regulators to respond “and hope this was not a reflection of the importance you place on emerging risks within your regulatory framework”.
He continued: “In their discussion, the board recognised that the risks in this area are not limited to the use of DBAs but a reflection of wider conduct of business type issues that could be a greater concern for regulators following market liberalisation.
“In particular, the board noted concerns around cost, service quality and price transparency, the combination of which could lead to ‘mis-selling’, a form of consumer detriment with which traditional legal regulation has not had to contend.
“These are all issues that have recently been highlighted by the consumer panel’s report on empowering consumers. The Legal Ombudsman has also commented on how many complaints concerning costs could have easily been avoided if the lawyers had been more open and transparent about the cost of their services.”
Though the LSB has decided not to issue guidance, Mr Passmore said it expected the regulators to monitor “developments in the area of price transparency in general and transparency of DBAs in particular to ensure that good consumer outcomes are secured. We would expect you to gather information on which practitioners were using such arrangements and reflect this information in your supervision”.
He concluded with a warning that the regulators’ assessment of the risks posed by DBAs and the action taken in response to them “will be a valuable indicator of the success of your regulatory risk framework”.