Co-operative Legal Services (CLS) has insisted that the collapse of the Co-operative Group’s planned purchase of 632 Lloyds Banking Group branches will have no bearing on its legal services expansion.

The Co-op revealed today that it had withdrawn from the process, blaming the economic environment and increasing regulatory requirements on the financial sector.

A spokesman told the Gazette that the Lloyds Banking Group branches were not included in CLS’s plan to offer legal services through all 330 of the Co-op’s high street banks.

CLS, which provides family law, will-writing, probate and estate administration, conveyancing, personal injury and employment advice, last year stated its intention to create the largest consumer law business in the country.

A spokesman said that CLS has no current plans to extend its coverage to provide criminal legal advice and will not be considering making a bid under the proposed new price-competitive tendering arrangements, scheduled for the autumn.

This week CLS, which six months ago established a family law division, announced that it is opening a network to provide face-to-face family legal aid services at 78 locations across England and Wales.

Advice will be offered through CLS offices, Co-operative Bank branches, National Family Mediation centres and at the chambers of panel barristers.

CLS is also one of three providers awarded a contract to provide the new Legal Aid Agency’s national telephone advice service, which all individuals seeking legal aid must initially call.

Speaking yesterday at a legal aid conference organised by the Westminster Legal Policy Forum, the former director of Justice Roger Smith said CLS, which provides free advice on its website and transparent and fixed fees, presents a ‘major challenge’ for traditional high street practices.

At the same event, justice minister Lord McNally said its arrival into the family advice market was an example of ‘new players seeking to change and innovate.’

But he said he had also seen ‘fantastic examples’ of innovative firms, keeping their costs down by using telephone services and Skype calls to offer advice to clients.

Peter Noyce, partner and head of professional services at accountants Menzies LLP, said: ‘Today’s announcement puts the threat to traditional legal practices into abeyance, but it has not gone away. Given the wider pressures facing the sector, such as outcome-focused regulation and well-capitalised market entrants attacking firms’ core client base, law firms will appreciate a degree of respite.

‘However, this is temporary and regardless of what the Co-op decides to do in the longer term, the sector can expect a tough time from competitors skilled in using sophisticated retail practices to win public trust whilst generating substantial profits.’