Lawyers and claims management companies (CMCs) making complaints to the Financial Ombudsman Service (FOS) on behalf of clients will be charged for doing so in future, under plans published this week.
The changes to the FOS rules will be enabled by legislative reform put forward by HM Treasury.
At the moment, the FOS can only charge case fees to the businesses that are subject to a complaint, but a draft statutory instrument published by HM Treasury this week would allow it to charge case fees to CMCs and “other relevant professional representatives” (lawyers, essentially) bringing cases to the FOS on behalf of complainants.
The FOS would then decide who is charged and how much, detailed in its own consultation this week on its plans and budget for 2024-25. The service will remain free to consumers and charities.
The Treasury consultation said: “The government has heard concerns that CMCs and other relevant legal professionals are able to ‘weaponise’ case fees charged by the FOS to pressure firms into settling claims before they formally become part of the FOS process.
“For example, firms have said they may decide to settle early where the level of redress being sought through the CMC claim is less than the amount the firm would be required to pay through case fees, regardless of whether the claim was upheld.”
The FOS told the Treasury that it saw “a mixed picture of good and poor behaviour” from CMCs and lawyers, with more than half of cases they raised not upheld “and FOS has reported examples of firms raising volumes of seemingly templated and poorly evidenced complaints”.
The FOS expects to receive more than 180,000 cases in its next financial year and its consultation said around 20% of cases in the past two years have been brought by professional representatives.
“While we recognise people may choose to use a professional representative, doing so can reduce a consumer’s redress by up to 30%, or more if the representative is regulated by the Solicitors Regulatory Authority.”
Firms will be allowed three ‘free’ cases – as the FOS already does with respondent firms – meaning that “it is mainly the commercial entities working at scale in the complaints ecosystem that would incur fees”.
As a result, “we anticipate that most law firms would not incur a fee under this approach”.
The consultation outlined a range of case fees under consideration, from £50-100 to the full case fee level (proposed at £650 for 2024/25).
It added: “Professional representatives have the opportunity to shape what they refer to our service in a way that unrepresented consumers might not be able to, and complaints should be presented and evidenced appropriately.
“Not doing so, especially across a high volume of complaints, negatively impacts our service standards, our ability to help other customers and our operational cost efficiency.”
James Dipple-Johnstone, deputy chief ombudsman, said: “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.”
Matthew Maxwell Scott, executive director of the Association of Consumer Support Organisations, said: “CMCs and other professional representatives such as solicitors play an important part in the claims industry, offering consumers choice when they need help to make a claim against financial and other institutions.
“On principle, we argue that the authorities should sponsor a system that makes it as easy as possible for consumers to make a claim, and our concern is that ultimately, these proposed fees will be passed on to consumers, making it more expensive for them to make a claim, increasing the risk that people will be off claiming at all, even if they have a justifiable case.
“At a time when the cost-of-living crisis is hitting consumers hard financially, another layer of cost seems regressive; charging fees is just another form of stealth tax on hard pressed consumers.”