Why Are Legal Fees So High


In the United States, it is considered illegal to practice law without having the proper license. The laws governing what constitutes the practice of law, and thus what requires a license, varies by state. While the laws may vary, it is generally understood that practicing law involves one individual representing another in a legal matter, with some form of compensation exchanged.

For example, Tom's neighbor accidentally damages Tom's fence, but refuses to pay for the damages. John, another neighbor, offers to file a civil lawsuit on Tom's behalf and represent him in court. In exchange for doing this, Tom pays John $100. Unless John has a license to practice law in that state, he would be guilty of the unauthorized practice of law. Depending on the state, John may be subject to criminal charges, fines, even imprisonment if he fraudulently presented himself as a licensed lawyer.

Are We Really Protecting Consumers or Lawyers?

Attorneys argue that requiring licensure for all lawyers acts to protect consumers. Most states require an appropriate legal education, as well as admission to the American Bar Association, in order for individuals to obtain a law license. Attorneys argue that this protects consumers from inept or uneducated legal representation. Unfortunately, that also means that consumers must pay for the added expense of the lawyer's initial education, malpractice insurance and ongoing educational requirements. Since law firms cannot hire an attorney unless the attorney is licensed, this also limits competition regarding the legal fees charged to consumers. Admission to the bar does not, however, guarantee quality representation.

Consider the example of Kathleen Sullivan, once the dean of Stanford Law School and a graduate of Harvard Law School. Sullivan was once a professor of law at Harvard, publishing numerous articles on constitutional law in various American legal journals. In fact, the National Law Journal named her as one of the top 100 most influential attorneys in America. Even with her years of legal experience, knowledge of constitutional law, and status as dean of a major American law school, Sullivan failed the California bar exam in 2005, making her ineligible for a law license until she passed the test.

By their very nature, the bar exam and similar licensure requirements are meant to weed out a certain percentage of candidates. In limiting the number of candidates available from whom consumers can choose, practicing attorneys can charge more for their services. Demand remains constant, yet supply remains limited, allowing for increased prices. Unfortunately, limiting candidates does not necessarily mean that the quality of legal representation improves, as evident by Sullivan's example. It only means that competition is limited. Licensing requirements create barriers to entry, so fewer candidates make it into the legal profession. Adopting a free market approach could change that, and subsequently, how much lawyers charge.

What Would Happen if Legal Representation Became a Free Market?

Free markets allow for open competition. A car mechanic, for example, does not have to be ASE certified in order to repair someone's car. As such, the number of mechanics who can enter the marketplace equals what the market can support. Too many mechanics mean not enough business and someone will likely close up shop. Not enough mechanics creates an increase in demand, which attracts more mechanics. Competition, the cornerstone of a free market, means that each mechanic has the same opportunity to attract business, but must moderate their fees to maintain an appropriate market share. If one mechanic charges far more than others in the area, he or she will lose business to the less costly shops. Since no license or certification is required, new mechanics can more easily enter the marketplace to help maintain an appropriate level of competition.

Lifting the restriction on practicing law could have the same effect on legal fees. Fewer restrictions make entry into any industry easier. Less restrictive barriers to entry mean an increase in the number of professionals from whom consumers can choose. More choices encourage competition, whether those choices are for auto mechanics or attorneys. In a highly competitive market, the fees charged have to stay within market tolerance; otherwise, consumers will shop elsewhere to save money.

What About the Problem of Inept Representation?

Ineptitude is not necessarily prevented by requiring licensure, as evident by Kathleen Sullivan's failure of the California bar exam. Other notable legal minds have likewise failed the bar exam on more than one occasion. For example, Franklin Roosevelt and Hillary Clinton both failed the bar exam. Even Jerry Brown, Attorney General for the state of California, initially failed the bar exam. Failure to pass the bar and obtain a law license does not mean an individual is not capable of good legal representation. Alternatively, passing the bar and gaining licensure does not guarantee good representation.

Just like a bad mechanic will eventually have to improve or close up shop, bad legal representatives would eventually be weeded out of the industry. Just as legal fees and other monies paid for products or professional services would have to stay competitive, so would the quality of a lawyer's services. After all, when there is increased competition in the marketplace, price is not the only competitive advantage. If given enough choices, consumers consider not only the cost, but what they get in return for their money. By default, quality lawyers who offered good legal representation in a free market would naturally retain a higher percentage of the market share. If they failed to maintain quality standards, consumers could simply go elsewhere.

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