How Did Legal Services Get So Unaffordable, and What Are We Going to Do About It?July 26, 2022
By Bob Glaves | CBF Executive Director
Over the past 50 years, we gradually have gone from a time in our country where the average middle-class person or small business generally could find affordable legal services when they needed them to a time today where everyday people struggle to afford legal help and lawyers often joke that they could not afford their own services if the need arose.
This is an issue I have written about before and posed solutions, but for this month’s post, I want to take a closer look at the primary drivers of this problem. I’m going to briefly review five overarching factors and give each a rating on a scale of one to three $ signs to signify how much it is driving the unaffordability trend, and I’ll start with one that is widely felt: the spike in the cost of law school.
- The Exploding Cost of Law School
It is hardly news anymore that the cost of law school—and the cost of higher education generally—has exploded since the early 1980’s, to where it is now about three to five times the cost in real dollars today. That translates into an average debt burden for new graduates of about $160,000 today, with many owing much more.
Some suggest that the huge jump in the cost of law school and associated debt is a major factor in causing legal services to become less affordable, and there is no question it has some impact (not least the psychological effect on lawyers as they consider career options). But the actual impact on the cost of legal services is not what many initially believe. If we assume, reasonably, that graduates today are saddled with $100,000 more in debt than they would have been if college and law school costs stayed closer to the rate of inflation, that translates into an extra $1,000 a month they need to repay on a standard 10-year repayment plan.
Yes, that is a lot of extra money to build into a budget. But if we assume the lawyer is like most out there and is billing by the hour (a much bigger affordability factor—see below) and assume conservatively they are billing and collecting on just 12 hours a week, that only adds about $20 an hour to the cost of the services. Again, not insignificant, but not the kind of money that fundamentally changes the affordability equation.
To be clear, the exorbitant cost of law school and the resulting weighty debt burden it places on most new graduates has many negative consequences for the legal profession, the legal market, and our society more broadly. We all need to make responsibly addressing this issue a priority, but its direct impact on the affordability of legal services is relatively small.
2. The Squeeze on the Middle Class
It is a fact that in the 50-year span that our affordability problem developed, the size of the middle class in our country has shrunk, from an estimated 61% of the population in 1971 to closer to 50% today (with a relatively even mix of some moving into the upper class and others falling into the lower-income group). And people in the middle class, particularly on the early end of the middle class spectrum, increasingly are feeling squeezed, with the recent spike in inflation only adding to that dynamic.
These trends are real and suggest a need to invest in more subsidized models to affordably serve people on the earlier end of that middle class spectrum, but that still leaves a huge market out there in Illinois and elsewhere that, with notable exceptions, are not well-served by our profession today. According to a study from Pew, the middle class group in the Chicago area ranges in income from $51,000 to $150,000 for a family of three, with a median income of $90,000. While they may not have it in their regular budget, these people generally find ways to pay for things they need or value, like vacations, cars, and other necessary services.
The key words there are “need or value,” and other businesses and professions have innovated and adapted to similar economic realities to market and affordably deliver their products or services in a way our legal profession generally has not. That said, this factor gets more points on our scale than the cost of law school, but as we will see below, still falls well short of the many factors that are in our control as a profession. And that leads to our next, and bigger, factor: the ways that lawyers price and deliver their services.
3. The Billable Hour
The start of our affordability problem was the 1970’s, when the billable hour started to become the prevalent form of pricing in the consumer and small business markets. Prior to that time, fixed fee pricing was the norm in the market, and to this day, the areas of the legal market where fixed fees are still the custom are much better functioning (along with the contingent fee market).
The billable hour is a self-inflicted scourge on affordability in the consumer market for many reasons, and I previously have made a top ten list of the problems it creates in this context.
When people seek out legal services, they typically are looking to solve a problem, manage a risk, make a deal, right a wrong, or find peace of mind on an issue that is important to them. In their minds, a good lawyer is a means to achieve one or more of those ends as effectively and efficiently as possible.
The billable hour, on the other hand, focuses on the lawyer’s inputs rather than on the value the lawyer is delivering for the client, and rewards inefficiency rather than reaching solutions as quickly as possible. It also creates a perception of unaffordability when the client does not know the cost and the value they will receive; people generally won’t buy things of uncertain cost or value unless they feel they have no other choice.
It is no coincidence that our unaffordability problem really took flight when the billable hour became more prevalent in the market. Yes, the price still matters, but when set fees (which come in many forms) are offered with flexible service options like limited scope representation, they give clients the transparency and certainty to make a value-based judgment about affordability that the billable hour never can.
4. The Too Often Overcomplicated and Antiquated Court System
As much as pricing and the ways lawyers deliver their services matter, the amount of work necessary for them to achieve a good solution for a client is often driven by the relative efficiency and accessibility of the court process.
The courts have a lot to do with affordability, and they can make a big difference on this front by simplifying and improving court processes, modernizing the system to allow remote access for most court hearings and routine court business, and using active case management to keep cases moving and encourage early resolution whenever possible. Each of these steps enables lawyers to serve their clients more efficiently and in a more cost-effective manner. Conversely, clinging to the old way of business adds unnecessary time and expense that makes it that much more difficult for lawyers to price their services affordably.
Fortunately, with the jolt of the pandemic and inspired court leadership this is an area where there has been a lot of recent progress in Illinois and real cause for optimism looking ahead.
5. The Broken Market for Legal Services
The last big piece of our affordability problem is the opaque and fractured market for legal services that has not seen the kind of innovation we have seen in other professions. This problem starts with the fact that we are still regulating for the 1980s rather than today’s fast changing world. As a result, people have a difficult time judging price and quality when they seek out legal services, have little way of knowing if technology-based solutions are right for them even as they seek them out, and too often do not even realize they have a problem that may have a legal solution.
The UK is showing how modern regulation can improve the market. For example, for several years now they have been mandating transparency in pricing for many legal services, and a recently released study shows it is making a real difference. Of particular note, more than half of the people and businesses surveyed in the study assumed legal services would be unaffordable going into their search. However, after they reviewed pricing information on lawyer sites, only 10% believed it was unaffordable. And even though price is rarely the deciding factor in why someone chooses a particular lawyer, increased transparency in the UK market is encouraging people to shop around and improving client satisfaction.
That is just one example of how modernizing regulation can improve affordability and improve the overall market for lawyers and clients alike. The CBA/CBF Task Force on the Sustainable Practice of Law & Innovation has offered a comprehensive roadmap and series of recommendations on this issue as it is an essential piece of the larger affordability puzzle.
What Does it All Mean?
While the first two of these five overarching factors in the cost and accessibility of legal services are largely beyond our direct control in the legal community, the other three factors that make up 75% of the problem are right in our backyard. And the solutions are largely in our control as the trustees of the justice system.
In other words, we have no excuses for inaction and need to lead the way to real solutions.