FTC Comment on North Carolina’s “LegalZoom Law”

In June of 2016, the Federal Trade Commission and the Department of Justice sent a detailed letter in response to an inquiry from North Carolina Senator Bill Cook. The subject? The impending enactment of North Carolina House Bill 436, legislation that would exclude online interactive legal forms from the definition of “the practice of law.” Providers of such forms would be required to meet a number of regulatory requirements, including extensive disclaimer and disclosure terms. 1

These federal agencies have no small amount of consumer protection expertise. The FTC also has a long history of calling out state attorney regulators for employing overreaching advertising rules to hamper the free flow of information about legal services.

In the letter, the FTC and DOJ quickly emphasized their point:

The Agencies recommend that any consumer protections, such as requiring disclosures, be narrowly tailored to avoid unnecessarily inhibiting competition and new ways of delivering legal services that may benefit consumers.

The message here is clear: don’t create regulatory requirements just to create regulatory requirements. Or without carefully considering the costs and benefits of such requirements, and whether there might be less-intrusive alternatives.

Why is this lesson so hard to learn? Why do we continue to grapple with rigid, mechanically-applied regulation, rather than flexibly determining whether the desired outcome – consumer protection – could still be met while enabling new and innovative ways of delivering information and services?

Here’s the FTC and DOJ again:

The Agencies recognize the important role of state legislatures, courts, and bar associations in protecting consumers of legal services from harm. The Agencies have previously noted, however, that unnecessarily broad [regulatory interpretations] can impose significant competitive costs on consumers of legal services, restrict access to legal services, and inhibit the development of innovative ways to deliver legal services to consumers.

It’s time to stop just reading the rules and thinking that slavish obedience is the path to consumer protection. The current approach is both overbroad and underprotective: it discourages innovation, scares away the ethical, and provides safe harbor for those willing to cloak consumer deception in the cloth of technical compliance. Let’s move past it, as our brethren in the UK have, and start focusing on the outcomes we want to achieve rather than the sterile minutiae of our rules and regulations.

Notes:

  1. HB 436 shouldn’t be seen as a recognition by North Carolina that a narrower definition of the practice of law would be useful to attorneys and beneficial to consumers; rather, it was the product of the settlement of a lawsuit filed against the state by LegalZoom.

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