The Conveyancing Association (CA) has reiterated its “strong opposition” to the proposed Interest on Lawyers’ Client Accounts (ILCA) scheme, following reports the Ministry of Justice (MoJ) is recruiting for a role which would help design and implement the policy.
The CA said it is “deeply disappointed” that work on the scheme appears to be progressing despite the MoJ having yet to publish its formal response to the consultation, which closed in March.
The MoJ launched its consultation on ILCA in January, proposing a proportion of interest earned on money held in legal client accounts should be transferred into a central fund to support access to justice, including legal aid and court services.
Following reports that the MoJ has advertised for a head of additional funding policy, with the successful applicant expected to support the “design, legislation and implementation” of a scheme which would raise funding from interest generated on legal client accounts, the CA said the wording of the recruitment advert “inevitably raises questions about the status of the consultation process”.
The membership body has questioned whether the government has already decided to pursue ILCA before publishing its response to the “deep concerns” raised by the legal and conveyancing professions.
The CA submitted a detailed response to the consultation earlier this year, setting out its clear opposition to the proposals and warning of the consequences for conveyancing firms, their clients and the wider housing market. It stressed that interest earned on client accounts should not be regarded as spare income which can simply be removed without an impact on firms or consumers.
The income helps many conveyancing firms meet the significant cost of operating secure and compliant client accounts, the CA said, including banking charges, audits, anti-money laundering controls, fraud prevention measures and the systems required to protect client money.
Those costs would remain regardless of whether firms were permitted to retain the interest generated by client funds, meaning the financial impact of ILCA would ultimately have to be met elsewhere, it added.
“For firms unable to absorb that cost, the likely result would be higher conveyancing fees for consumers, while further pressure would also be placed on businesses already operating within a highly competitive and low-margin market”, the CA warned, which would be “particularly difficult to reconcile with the government’s wider work to improve the home buying and selling process, including its aim of reducing costs, delays and friction for consumers”.
The CA has also questioned the principle of requiring clients using legal services, including people buying and selling homes, to provide a new source of funding for the wider justice system.
Other representative bodies have also restated their opposition following publication of the recruitment advert. The Law Society said ILCA “cannot and should not proceed”, while the Society of Licensed Conveyancers (SLC) has reiterated its opposition to implementation before the consultation outcome has been published.
Beth Rudolf, director of delivery at The Conveyancing Association, said: “We made our position very clear when we responded to the consultation earlier this year, and nothing that has happened since has changed our view ILCA would be bad news for conveyancing firms, their clients and the wider home moving market.
“What is particularly disappointing now is that the consultation closed six months ago and we are still waiting for the MoJ’s formal response, yet it appears to be recruiting someone to work on the design, legislation and implementation of the scheme.
“That inevitably raises questions about the process. If the government has not yet reached a decision, then we would like to understand why it is recruiting for a role framed in these terms before it has responded to the very serious concerns raised during its own consultation.
“We continue to wholly reject the suggestion client account interest is somehow money without a purpose. Running client accounts safely and properly costs firms significant sums of money, and the interest generated helps meet those costs. Taking away that income does not take away the costs, and ultimately somebody will have to pay for them.
“For conveyancing firms that means either absorbing another significant cost, which many simply cannot do, or passing it on through higher fees to home buyers and sellers. At the same time, the Government is rightly trying to improve the home buying and selling process and reduce the wasted cost of fall throughs and delay, so introducing a measure which could have precisely the opposite effect makes little sense.
“We fully support the need for a properly-funded justice system and access to justice, but that is a responsibility which should be met through fair and transparent public funding. It should not be achieved by imposing what amounts to a new charge on one part of the legal profession and, ultimately, its clients.
“Government should remember conveyancing firms already pay corporation tax on this income so the Government is already getting its share – the tax it receives will drop if conveyancers are no longer receiving the interest on client accounts. Which makes you wonder if ILCA is simply a stealth tax on everyone?
“We would therefore urge the MoJ to publish its consultation response immediately before taking any further steps towards implementation, to listen carefully to the strength of opposition across the profession, and to reconsider whether ILCA is either a fair or sensible way to fund the justice system.”
