Financial ombudsman to stop claims management firms getting 'free ride'

The Financial Ombudsman Service (FOS) will introduce a £250 charge for claims management companies from April in a bid to complaints that are well supported.

Currently, the FOS says there is “little commercial incentive” for these firms to bring forward only strong cases.

Between April and December last year, professional representatives accounted for 47% of complaints submitted to the ombudsman. However, only 26% of those cases were upheld in favour of consumers, compared to 38% of complaints brought directly by individuals for free.

James Dipple-Johnstone, deputy chief ombudsman at the FOS, noted: “We've seen more cases brought by professional representatives, but fewer of these cases leading to a better outcome for their clients.”

The FOS, which resolves disputes between consumers and financial firms, will remain free for individuals submitting cases themselves, as well as for those assisted by family, friends, charities, or voluntary organisations.

Under the new rules, professional representatives can submit up to 10 cases per financial year without charge. Beyond that, they will be required to pay £250 per case. If a complaint is upheld in favour of the consumer, the firm will receive a £175 refund, reducing the net charge to £75.

Currently, financial businesses pay a £650 fee for complaints investigated by the FOS, while claims management companies face no charge. Under the new system, if a case brought by a professional representative is not upheld or is withdrawn, the financial firm involved will pay a reduced case fee of £475 instead of the standard £650.

Commenting on the announcement, Stephen Haddrill, director general of the Finance & Leasing Association said:  “The introduction of charging is a most important step forward. CMCs are major businesses that should not have a free ride, not least because they have driven a compensation culture that damages investor confidence in the UK and threatens growth. However, today's decision on the level of the charge is unsatisfactory and we will continue to call for it to be increased.

“Professional representatives should be charged on the same basis as lender firms to deliver a fair and equitable approach. And the suggestion that lenders must pay the lion’s-share of the £475 case fee even when they are not at fault runs counter to FOS’s aim of applying a ‘polluter pays’ principle. We know of no other example where the loser in a case involving two businesses pays less than the winner.”