Financial Ombudsman mulls plans to charge claims management firms

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The Financial Ombudsman Service (FOS) is looking at charging claims management companies and no-win, no-fee law firms to make complaints in a U-turn just a year after ruling out the move.

The FOS vowed to keep complaints free for consumers but is launching a consultation on charging for complaints from claims management companies (CMCs) and other professional representatives after seeing a surge in cases.

A fifth of its casework is now through these firms, it said.

The FOS said it had now been handed new powers in the Financial Services and Markets Act, allowing it to charge for these types of claims should it decide to go ahead.

It comes just a year after it ruled out charging CMCs for complaints following feedback on the matter as part of its wider 2022-23 plans and budget consultation.

The FOS also said at the time that it would not proceed with legislative changes to enable it to charge professional representatives.

But the change of stance comes after a jump in cases from these firms, as well as “good and bad behaviour” being seen in the sector, which impacts its ability to help other customers and increases case times, according to the FOS.

James Dipple-Johnstone, deputy chief ombudsman at the FOS, said: “We are committed to improving our service so it is as easy to use and accessible as possible, while ensuring it remains free for all consumers and that those with upheld complaints can keep all of any award we make.

“Professional representatives play an important role in resolving financial disputes.

“However, 20% of cases are brought by representatives, some of whom benefit commercially at scale, yet more than half of such cases are not upheld.

“It is, therefore, timely that we explore whether our fee structure is right for the current climate and best reflects the costs we incur in helping resolve disputes for customers.

“We welcome all views from industry and consumer groups on our proposals on whether and how a charging regime might work in practice.”

The FOS revealed it is considering charging CMCs and professional representatives between £50 and £200 upfront for initial work on the case, depending on complexity, or a potential £650 on closure of the case to cover the cost of case conversion, casework time and other costs involved in resolving the complaint.

But it is also proposing that the first three complaints cases would be free of charge.

It is looking for views on how a charging regime might be introduced, including on the fee levels, as well as the impact on complaint volumes, the potential impact on different groups of complainants and the lead time required for businesses and professional representatives to be ready for changes.

The consultation is open until January 30.

Details of the proposals were revealed alongside details of its plans and budget for 2024-25, which reveal it is expecting to receive 181,300 new complaints about financial providers in the next financial year.

It is set to cut the cost of its service to industry, with proposals to reduce the case fee by £100 per case to £650.

Overall, it said changes would lead to a £60 million cut in case fee and levy costs to businesses.

It has also set itself a new target of resolving 90% of cases within five months.