Compensation: limit should be brought into line with the Financial Ombudsman, says panel
The current limit of compensation that the Legal Ombudsman (LeO) can award complainants should increase five-fold to £150,000, the Legal Services Consumer Panel has recommended.
It has also called for an increase in the £400 case fee levied by LeO and removal of the two ‘free’ complaints every firm/lawyer is allowed each year without incurring a case fee.
In its response to LeO’s consultation on its scheme rules, the panel said the compensation limit should reflect the potential levels of detriment suffered by consumers. “This can be high in legal services, such as disputes involving property. We see a risk that consumers are not bringing complaints because they perceive the value of these to exceed the current £30,000 limit.
“Equally there is an incentive for firms to reject a complaint if the potential redress exceeds £30,000 as they can let a complaint drag out in the knowledge they will not meet their full liability should the consumer pursue the ombudsman route.”
It argued that this would not open the floodgates – “the current case profile suggests that only a small number of cases are reaching the upper limit” – and would not lead to LeO accepting complex cases that should be a matter for the courts as it must already refuse cases when it is not competent. “The key decision criteria on eligibility should be the complexity not value of the claim.”
LeO has suggested raising the limit to £50,000, but the panel saw “no compelling reason why award limits should not be harmonised with that available to the Financial Ombudsman Service” – where the upper limit was recently lifted to £150,000.
“The size of consumer detriment could match this level, albeit in very rare situations. Indeed, there are strong reasons to harmonise given the growing overlaps between legal services and financial services. Without this, perverse consequences may result, such as ‘ombudsman shopping’.”
Case fees are levied when a complaint is upheld and LeO is not satisfied that the lawyer took all reasonable steps to resolve it under their own complaints procedure. For various reasons case fees are accounting for a smaller proportion of LeO’s income than expected, and the panel said there would appear scope to increase the fee to a level that is still reasonable while also achieving “the higher proportion of case fee income that stakeholders wish to see”.
It also called on LeO to remove the ‘free’ case element altogether because it may “breed complacency among lawyers in first-tier complaint handling”.
The response backed LeO’s plan to extend the one-year time limit for making complaints to six years from the event or three years from knowledge of the event, and for it to accept complaints from prospective clients. This “should serve as an important deterrent against cold-calling and other undesirable sales techniques”.
In a separate paper issued earlier this month, the panel supported LeO’s proposal to allow complaints from third parties.
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