Far better a lender than a solicitor be
6 October 1997
Lenders use their strong bargaining power against individual firms of solicitors by refusing to pay directly for legal services, but instead insisting that the solicitor collects fees from the purchaser client.
This stands in stark contrast with the way lenders settle their bills with surveyors, which receive direct payment.
So why is there a difference? The answer lies in the fact that surveyors have decent representative bodies and would refuse to work under the payment conditions lenders impose upon solicitors, which would bring the mortgage market to a halt.
Lenders know full well that because of the "cut-throat" competition in the conveyancing sector, most solicitors are unable to charge the full rate agreed between lenders and the Law Society or, indeed, any fee at all. This cynical manipulation of the weakness of individual solicitors' firms is designed purely to boost lenders' profits - at solicitors' expense.
The recent refusal of the Office of Fair Trading (OFT) to "bless" the fee scale is a complete red herring. The OFT has done no such thing for surveyors, yet they are paid directly without question. In any event, it is not the level of fees which is at stake, but simply the refusal of lenders to act as sensible and responsible clients by paying for solicitors services.
Because the Law Society has failed to represent the interests of the profession, solicitors are losing between £120 and £380 on each mortgage transaction. This fee represents pure profit to lenders because the work has already been carried out - and for free.
Using an average of £150 per purchase file, firms should take time to sit down and calculate how much they could gain if paid for their work. Most would find it would transform their fortunes considerably.
To add insult to injury, the lenders now impose increasingly onerous conditions upon solicitors. These conditions seem designed to protect the lenders against their shortcomings and to ensure that there is always a fall guy around to take the blame.
Lenders have the audacity to claim, through the Solicitors Compensation Fund and SIF, when solicitors fail to carry out this "free" work correctly - it really is naive of lenders to be surprised if they do not receive a proper service if they will not pay for it.
This Alice-in-Wonderland situation cannot be allowed to continue and I urge the Law Society Council to find an answer to this problem.
In doing so it should bear in mind the following points:
The fee scale is acknowledged by the Council of Mortgage Lenders to be fair and reasonable.
Lenders have never sought to justify their stance and rely only upon the weakness of council and the general inertia of the profession.
To redress the balance, solicitors are entitled to effective representation by the society, something which has been sadly lacking to date in the conveyancing field.
The society has been negotiating with lenders for more than four years on the question of direct payment of fees. The lenders have refused to pay fees directly, claiming it will put them at a competitive disadvantage. Clearly negotiations on direct payment of fees have completely failed and the society must now confront the problem directly.
It is economic madness for the SIF to continue to pay out to lenders where there is no corresponding income because no fee has been paid.
Failure to pay proper fees obviously results in a loss of fee income to the SIF, which as mentioned previously, it cannot afford.
If the society is not prepared to find ways of excluding lenders from the Solicitors' Compensation Fund and SIF, then it must change the rules to make it obligatory for any lender seeking compensation or indemnity to provide an original receipted invoice from that lenders solicitor showing that the fee had been paid directly.
If all else fails, the profession should again be balloted on the issue of separate representation. I am sure this would show a majority in favour and at least some solicitors would be paid for doing the work. Separate representation will immediately cut down the number and cost of claims against the SIF.
This inequitable situation is crying out for action from Council. Words and pious hopes or exhortations for solicitors to charge properly are simply not enough. Right is on solicitors' side. We would strive to obtain justice for a client in this position and we must all make the effort to find justice for ourselves.