Why do we regulate lawyers and paralegals? Why not just let the “market” do its’ thing? The standard answer is two-fold and relates to the need for legal expertise.
Credence goods and professional regulation
The first part of the answer focuses on consumers. The legal system is complex. Addressing legal problems requires expert assistance. People are not well able to judge for themselves whether their lawyer or paralegal is actually competent. Of course, there is much that can be assessed by clients such as being a good communicator and being responsive. But clients can’t be confident whether the advice received is good and whether the results obtained are appropriate in the circumstances.
Economists talk about “credence goods”. These are goods (or services) where the consumers can’t really assess whether, and to what extent, they need the goods on offer. Ironically, the producer of a credence good assists the consumer in understanding what is needed from the producer– and the consumer can’t fully assess the quality of what is provided. Economists talk about information asymmetry between consumers and producers where credence goods are concerned. The bottom line is that markets don’t work effectively where consumers can’t judge the quality of services provided nor the true need for those services.
Licensing addresses this market failure by providing a signal to consumers that licensed professionals are sufficiently competent. Post-licensing regulation seeks to ensure that licensed professionals conduct themselves properly and don’t take advantage of information asymmetry by taking advantage of their clients.
The second part of the answer focuses on the legal system itself. The legal system depends on competent and ethical legal representation. Whether in disputes resolved by the adversarial system or in transactional matters, our legal system would be rendered ineffective (or worse) if clients who need expert assistance are provided inexpert or unethical assistance. It is commonly said that having incompetent representation is worse than having no representation at all. And having no representation can be highly problematic as the plight of the self-represented litigants shows.
None of this is to say that professional regulation is a panacea. One of the consequences of regulation is that prices tend to increase because competition is restricted by barriers to entry. And no regulation is perfect. There are many frailties and imperfections in professional regulation. But there is good reason to regulate lawyers and paralegals.
Consumer reviews and professional regulation
This description of the rationale for the regulation of legal services provides some background to for a discussion of a recent thoughtful commentary called Online Reviews as an Alternative to Professional Regulation? by Natasha Danson of Steinecke Maciura LeBlanc.
Ms. Danson looks at recent scholarship that considered the effectiveness of online reviews as a means of consumer protection. In the home improvement context, one study indicated that price and online reviews were the most important factors in consumer choice, that licensure information had no impact and that stringent licensing requirements resulted in less competition and higher prices but did not appear to affect customer satisfaction. In contradistinction, another study contended that online reviews were less useful in the selection of professional service providers and that a “a “co-regulatory or collaborative approach for the interaction between online reputational mechanisms and traditional regulation” was called for.
In her commentary, Ms. Danson suggests that regulators might consider establishing their own platforms to host online reviews or making complaints and discipline information publically available whether directly or through independent platforms.
There is much that is appealing about Ms. Danson’s suggestions. Her suggestions are not premised on a false “all or nothing” approach but rather recognize that there is value in the consumer perspective and a need to better inform consumers.
A collaborative approach?
It would be absurd and patronizing to think that clients are unable to make any useful assessment of the professional services that they receive. While there are inherent limits to client assessment, there is much about effective professional service that does not require expertise. By way of example, LawPro has long reported that legal errors are not the most common cause of liability claims against lawyers. As LawPro recently reported:
Students in the midst of law school, with its mountain of reading on cases and substantive law, might be surprised to learn that “errors of law” are not the biggest pitfall to watch out for in the world of private practice. In fact, in the last ten years, only about 14 per cent of LAWPRO malpractice claims were caused by lawyers getting the law wrong (except in very complex areas like family or tax law).
So, if knowing the law isn’t the problem, what is the danger that new lawyers should be on the lookout for? In a nutshell, you could call it “human error”: breakdowns in communication, poor calendaring and procrastination, and not digging deeply enough into a client’s matter. These types of errors make up almost 67 per cent of the claims LAWPRO sees.
While clients may not be able to assess everything, clients have insight into the quality of communication and factual investigation, and into the diligence and timeliness of the work done on behalf of clients. To be clear, individual assessments may be wrong or ill-intentioned. But clients have something to say.
On the other hand, one of the reasons that professional regulators are called upon to investigate complaints is that effective assessment of complaints commonly requires the expertise of the regulated profession.
The point is that useful information can come from clients and some can come from professional regulators.
So why isn’t this all easy?
If we accept that potential clients would be better served by access to more information about lawyers and paralegals, and if we accept that clients and professional regulators have useful information then it seems to follow easily that such information should be assembled and publically disclosed.
However, it seems to me that there are several significant problems to be thought about. One problem is selection bias. Those who post online reviews and those who make complaints are not necessarily representative of clients generally. Happy clients don’t make complaints. And it seems likely that client with more extreme view are most likely to post online reviews. Another problem is that not all online reviews and complaints are made in good faith. Indeed, some are entirely fake. A third significant problem is that the complaints and discipline process itself might be adversely affected if called on to serve a consumer assessment purpose rather than to reactively regulate conduct.
Nevertheless, the market failure inherent in credence goods means that consumers need better information. Licensure serves that purpose. But licensure does not help consumers distinguish between licensees – and we all know that some licensees are better than other licensees. If we generally believe in markets and consumer choice then we should also recognize that markets are imperfect – that only “permitting” perfect information would be to frustrate the operation of any market. Consumers go to on-line platforms not because they expect perfect unbiased assessments but because the product of enough rankings/assessments provides useful information.
I’ve written previously about disclosure of investigative information as a counterpoint to the increase in potentially misleading brand advertising. My concern was that:
It is commonly difficult for prospective clients to obtain good information about lawyers and paralegals. The significant growth of brand advertising is cogent evidence of this. Potential clients assume that brand is evidence of quality when that may well not be the case. Substantial sums are paid for brand advertising because it works. Similarly, the advertising of dubious awards and reassuring photographs evidences that lack of genuine information about quality.
Ms. Danson’s focus on providing both consumer information and regulatory information to consumers is another way into the same issue. In my previous post, I suggested that there were ways that regulatory information might usefully be disclosed. I suggested that stale information might be excluded from disclosure and that only complaints that met a minimum threshold should be disclosed. I wrote that:
Perhaps the practical answer to concerns about disclosure of unfair or misleading information is careful focus on what should be disclosed. If there is only disclosure about investigated complaints which have led to a regulatory outcome then what would be disclosed would be the result of investigation and evaluation. Fear of disclosure of malicious or unfounded complaints would not be justified.
I continue to think that the regulatory process provides potentially useful information that is not now available because, currently, only authorized prosecutions are publically disclosed.
And there is a further advantage to greater transparency namely public confidence. Of the thousands of complaints that are made to the Law Society each year in Ontario, few ever are seen by the public to have a regulatory impact. While the public can learn about the one hundred and fifty or so discipline cases that are prosecuted annually, better transparency with respect to other regulatory outcomes could reassure the public that professional regulation is actually being done and that the quality of this credence good is enhanced by professional regulation.
Almost all agree that professional regulation should seek to ensure minimum standards of competence and conduct through traditional regulatory approaches. Most also support encouraging better and best practices through modern proactive regulation. The point of this column is that providing information about legal services is a further valuable contribution that can be made so that consumers can make better choices, so legal services markets can be more effective and so that public confidence in legal services can be enhanced.
 Grey Areas: A Commentary on Legal Issues affecting Professional Regulation, February 2020, Issue no. 243
 Common practice pitfalls: And how to avoid them, February 26, 2020 by LAWPRO