It was probably not the intended outcome, but the decision by HSBC Bank to restrict its panel of solicitors that it will instruct for mortgage transactions to just a few firms (four in Scotland) has given impetus to the debate on whether solicitors should be permitted to continue to act for both lender and borrower in the same transaction.
The rule currently appears as an exemption to the general rule against conflicts of interest. Should it continue?
It can be assumed that HSBC would much prefer all its borrowers to take its offered package, available via the select few. It no doubt expects these customers to want to save the second fee that they will incur by instructing their own solicitor, in addition to still being charged the bank's solicitor's fee. And there is now an interesting discussion underway on LinkedIn about difficulties being put in the way of, or highly onerous undertakings being demanded of, non-panel solicitors instructed by borrowers. I hope to follow this up with a feature in the February Journal.
What if the profession were to call the bluff of those lenders seeking to drive their customers towards a select few panel members, by abolishing the lender-borrower conflict exemption?
Judging by some of the practitioner comments, there are those who believe that it would only create more hassle, for themselves and their clients, to have to deal with separate solicitors acting for the mortgage lender.
One would hope that the Law Society of Scotland will be watching closely to see what practices are being adopted. If there is anything that appears designed more to put difficulties in the way of a borrower's own firm than as proper safeguards for the lender's interests, it should consider appropriate practice guidelines to restore the balance.
But it seems to me also that there are wider public interest questions that should be more fully examined in relation to at least some of the restrictions on panel membership. These concern consumer choice, market distortion, abuse of dominant position and the like.
We should acknowledge before going further that mortgage fraud is a serious and growing problem, and financial institutions are entitled to take steps to minimise the risk of their falling victim. How far should this encroach on the borrower's right to instruct their solicitor of choice, in a market economy, given the tight regulation to which the profession is subject and the protections in place for clients against negligence or dishonesty?
I suggest that it is time for the Office of Fair Trading to start taking an interest. It was its role in upholding the super-complaint brought by Which? against the restrictions surrounding the provision of legal services, that led to the whole ABS scene unfolding, in the name of greater consumer choice. Allowing mortgage lenders to restrict panels to a handful of firms, or impose onerous conditions on those wishing to join a panel, could set consumers back to a far worse position in terms of choice than they are in at present, never mind as compared with what might otherwise be open to them under ABS.
Will the OFT act to preserve what it has led the struggle to achieve?