The Conveyancing Association (CA) has set out firm opposition to the Ministry of Justice’s proposed Interest on Lawyers’ Client Accounts (ILCA) scheme, warning it risks higher costs for homebuyers and sellers and could further destabilise an already stretched conveyancing sector.
Under the proposals, interest earned on client money held by law firms would be diverted into a central fund to support the justice system, including legal aid and court services.
While banks would continue to pay interest on client accounts, law firms would be required to transfer a significant proportion of that income to the scheme.
The MoJ suggests taking between 75% and 100% of interest earned on pooled client accounts, and around 50% from individual client accounts. The scheme would apply to most client money, including funds held for residential conveyancing transactions, with interest collected monthly or quarterly by a central administrator.
NOT SURPLUS PROFIT
The CA argues this income is not surplus profit. For many conveyancing firms, interest helps offset the rising costs of running compliant client accounts, including banking charges, audits, anti-money laundering controls, fraud prevention and IT systems designed to protect consumers.
Removing it, the Association warns, will force firms operating on tight margins to pass costs on through higher fees.
First-time buyers and those at lower price points are expected to be hit hardest, with the CA describing the proposals as a stealth tax on the most vulnerable participants in the housing market.
BUSINESS RISK
The Association also warns the scheme could undermine fixed-fee, high-volume and high-street business models, some of which rely on retaining client account interest with consent to remain viable.
Combined with duplicated regulation, ongoing AML pressures and declining firm numbers, the CA says the proposals risk accelerating exits from the market and reducing capacity at a time of sustained transaction volumes.
Concerns were also raised about access to banking, already a major challenge for conveyancers due to de-risking by lenders. The CA has urged the MoJ to rethink the proposals and engage more closely with the sector before pursuing reforms that could raise costs and restrict choice for home movers.
EXTRA ADMIN COSTS
Beth Rudolf, Director of Delivery at The Conveyancing Association, says: “Client account interest is not a spare pot of money that can be simply taken away from firms without consequences.
“For conveyancing firms, it plays a real role in funding the systems, controls and checks that protect consumers and allow transactions to proceed safely. Removing it does not make those costs disappear, it simply shifts them elsewhere and adds in additional administration costs.
“In practice, that means higher fees for all those requiring conveyancing services and advice, and real pressure on the firms delivering conveyancing services. At a time when access to banking is already difficult and capacity in the market is stretched, these proposals risk making the situation worse.”
ILL-THOUGHT THROUGH
And she adds: “This whole consultation and proposal feels ill-thought and rushed through. The consultation paper was only sent by MoJ to nine entities and not to any practicing conveyancers.
“Any reform needs to be based on proper evidence and a clear understanding of how conveyancing actually works, otherwise the impact on consumers and the housing market will be significant and undoubtedly negative in the extreme. We would urge the MoJ to reconsider these set of proposals and to consult with us on how to move forward.”
