Regulatory sandbox programs can promote legal innovation and improve access to justice

Millions of Americans cannot afford legal services to resolve housing problems like eviction, family law disputes such as child support and other common issues that arise with veterans’ benefits and disability access. Cumbersome regulations and a lack of competition are partly to blame, stifling innovation and driving up legal fees.

According to the Legal Services Corporation, the largest provider of civil legal assistance for low-income Americans, 86 percent of Americans who sought civil legal help received inadequate assistance, or none, in 2016, the latest year for which data are available. Canada has a similar problem. Approximately 85 percent of British Columbia residents did not seek legal help in response to serious and difficult problems in the last three years, according to a 2020 Ipsos survey.

Most U.S. states and Canadian provinces limit non-legal businesses’ ability to provide legal counsel and bar non-lawyers from owning an economic interest in law firms. For example, the Big Four accounting firms – Deloitte, Ernst & Young, PwC and KPMG – face significant hurdles in providing legal counsel to their clients for business transactions. The absence of competition has helped increase legal fees, resulting in a lack of access to justice in both countries.

In contrast, the United Kingdom and many Asian countries allow some non-legal businesses to offer legal advice in direct competition with law firms. That is why U.S. states need to reform the current legal system, promote innovation in the legal sector and expand access to justice.

Regulatory sandboxes offer one such approach. To that end, the Utah Supreme Court eliminated a rule that prevented non-lawyers from co-owning legal firms and created a legal sandbox program. Two Canadian provinces (British Columbia and Ontario) have followed suit and created legal sandbox programs.

Regulatory sandbox programs help in two ways. First, they provide a safe regulatory space where companies can apply new technology – like natural language processing and machine learning – to legal services. Such technology can help firms offer services, such as reviewing documents and automating filing processes, at a much lower cost. Second, by allowing non-law businesses to provide these services, sandboxes can increase competition between legal and non-legal firms. 

Two examples demonstrate sandbox programs’ potential to lower legal fees and improve access to justice. Law on Call is the first non-lawyer-owned law firm in the U.S. It offers a $9 monthly subscription, which allows customers to receive immediate legal advice over the phone.

Customers can also hire lawyers at a significantly reduced cost. A lawyer with one to three years’ experience charges less than $100 per hour. LawGeex, a software company, uses AI-enabled technology to automate contract review processes. According to the company, this technology reduces contract review time by 80 percent and associated costs by 90 percent, compared to hiring traditional lawyers.

Concurrently, British Columbia’s sandbox is also paving the way for legal innovation. For example, one sandbox participant provides an online service where customers can create power-of-attorney and will documents, and another for online legal referrals. 

Such developments can also benefit legal practitioners. Instead of focusing on mundane document reviews and writing of generic contracts, lawyers could focus on legal analysis and activities where human judgment and capabilities are far superior to artificial intelligence capabilities.

As the positive outcomes from these sandboxes become more widespread, more states should consider adopting them. Arizona was the first state to eliminate the rule barring non-lawyers from co-owning legal operations It decided that it will not create a sandbox program for the time being, but California recently created a legal sandbox. 

Meanwhile, several states, including North Carolina and Florida, are currently considering different ways to pursue regulatory reforms in the legal services industry. Creating a regulatory sandbox might help these states bring much-needed innovation to the legal sector.

Growing advances in machine learning and natural language processing also have significant potential to improve efficiency, reduce legal costs and expand access to justice. State lawmakers and bar associations should consider designing sandbox programs where innovative firms could test new technologies and business models in providing legal services. Individual states can become hubs for legal innovation in U.S. and international markets by designing effective sandbox programs.

There is no reason why high costs must continue to keep people from finding solutions to life problems that hinge on access to legal services.

Ryan Nabil is a research fellow at the Competitive Enterprise Institute in Washington, D.C, and a former Fox Fellow at Sciences Po in Paris.