Proposed Definition of the Practice of Law Would Likely Reduce Competition, Harm Consumers

Charles Harwood, Director of the Northwest Region office, urged the American Bar Association (ABA) to substantially narrow or reject a proposed model definition of the practice of law at an ABA Task Force hearing held in Seattle, Washington on Friday, February 7. If adopted by state governments, Harwood said, the definition likely would reduce or eliminate competition between non-lawyers and lawyers to provide a number of services, leading to higher prices and a reduction in competitive choices for consumers.

Harwood emphasized that the proposed model definition would prevent non-lawyers from offering many services they currently provide. Lay persons presently provide valuable low- cost alternatives to many functions also handled by attorneys, such as real estate closings and advocacy for social services. Evidence suggests that the use of lay real estate closers has reduced costs to consumers. The model definition could also prevent tenants' associations from informing renters of their legal rights and responsibilities. By broadly defining the practice of law, the proposed definition likely would reduce competition from non-lawyers.

"We're also concerned about the interface between unauthorized practice of law and electronic commerce," Harwood said. "Internet lenders often rely on non-lawyers to close mortgage loans at a cost, time and location preferred by consumers. Some document preparation software offers suggestions in response to consumer inputs, and on that basis some might say the software maker is giving legal advice."

If adopted by state governments, Harwood said, the proposed definition likely would increase prices for consumers in two ways. First, those who would otherwise not retain legal services would be forced to do so, and, traditionally, lawyers charge more than lay providers for many services. Second, without competition from non-lawyers, lawyers' fees would likely increase.

In the real estate context, Harwood noted, under the proposed model definition, home buyers could be required to retain attorneys to write and interpret real estate purchases and sale agreements and to provide other information and advice presently provided by real estate agents. Likewise, borrowers would have to employ other lawyers to promote certain real estate closing services that non-lawyers currently provide. These additional costs would be incurred by home purchasers, as well as consumers refinancing their existing loans or second mortgages.

Harwood also pointed out that the Task Force has not provided evidence that lay service providers harm consumers. "Without a showing of likely harm, restraining competition in a way that is likely to hurt consumers by raising prices and eliminating their ability to choose among competing providers is unwarranted," he said.

The Commission vote authorizing Harwood's oral testimony was 5-0.

NOTE: Copies of the joint FTC-DOJ letter on the proposed definition of the practice of law are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the FTC enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.