Dipple-Johnstone: Little commercial incentive for firms to bring strong complaints
Only one in 10 law firms handling financial services mis-selling matters will have to pay the new £250 case fee to the Financial Ombudsman Service (FOS), it has estimated.
The FOS confirmed last week in a policy statement that it would introduce the case fee from 1 April, despite strong opposition from law firms and claims management companies (CMCs) – and the Law Society criticising the amount.
If the outcome goes in favour of the complainant, £175 will be credited to the professional representative. If it does not, the case fee for the financial business the complaint was made against will be reduced from £650 to £475.
There will be a statutory exemption for charities, family members and free advisory organisations, while the FOS will remain free for complainants who come to it directly.
The main change following last year’s consultation is that professional representatives will be able to bring 10 cases for free each financial year, rather than the three initially proposed.
This meant the vast majority of law firms and CMCs will not incur a fee, as 81% of refer fewer than 10 a year, according to the FOS.
Its analysis indicated that 11% of lawyers who took cases to the FOS would incur a fee, down from 20% had the limit stayed at three cases; the figures were 31% and 45% respectively for CMCs.
The financial services industry had argued that law firms and CMCs should pay the same £650 fee they were required to pay.
The FOS said: “We feel that the £250 as proposed will provide a fair apportionment of financial responsibility between CMCs [it used the term to encompass all professional representatives] and respondent firms.
“Secondly, in turn we believe it will encourage CMCs to submit better-evidenced complaints, and to consider the merits of those cases more diligently, before referring them to us.”
Between April and December 2024, around 47% of complaints submitted to the FOS were from professional representatives – a “significant increase” on previous years – but only 26% succeeded, compared to 38% of those brought directly by consumers for free. The uphold rate has reduced, while more cases have been withdrawn or abandoned rate has increased.
This meant that professionally represented cases were having “an increased impact” on the FOS’s costs.
It said the main concerns expressed by the claims management market was the impact the fees would have on its economic viability and as a result on consumers’ ability to complain.
“Our research and analysis, in conjunction with FCA data, highlights that the economic viability concerns raised are not conclusive,” it said.
“Given the vast majority of complaints are resolved without our service’s involvement (therein attracting no case fee), and that only a relatively minor portion would incur a fee… the evidence does not suggest that our new rules could seriously threaten the financial viability of the claims management organisations in scope, or deter genuine complaints for consumers.”
The FOS acknowledged that, with CMCs acting almost exclusively act on a ‘no win, no fee’ basis, meaning they need the complaint to yield “a certain level of monetary settlement”, the change could lead to fewer professionally represented complaints being referred to the service.
But then, “the vast majority of complaints do not use professional representation”.
A further concern was that the case fee may be passed onto complainants but the FOS took comfort in knowing that both the Solicitors Regulation Authority (SRA) and Financial Conduct Authority have rules which mean consumers have to be made aware of key things, such as the right to access the FOS’s service free of charge and how much they will have to pay the law firm/CMC.
James Dipple-Johnstone, interim chief ombudsman, acknowledged that professional representatives “can play an important role in resolving financial disputes by providing high-quality, good value services to those people who make an informed choice to employ them”.
But he said: “We’ve seen more cases brought by professional representatives, but fewer of these cases leading to a better outcome for their clients.
“Currently there is little commercial incentive for representatives to ensure the complaints they bring are well-founded or have merit. As a not-for-profit service, we expend our finite resources handling thousands of withdrawn or abandoned cases, which can lead to longer wait times for other customers.
“The charges we are introducing from April will bring better balance to our fee model, helping us to resolve disputes quickly and ensuring a wider contribution towards our running costs.”
Matthew Maxwell Scott, executive director of trade body the Association of Consumer Support Organisations, said: “This is a premature decision by the FOS which will only serve to increase customer detriment and unfairly reduce the number of complaints submitted. Financial services businesses will be celebrating as a result, with many consumers forced to abandon attempts to seek redress.
“It seems extraordinary that the FOS has announced its plans before the hugely important Supreme Court appeal decision on the motor finance scandal, the hearings for which only begin on the day the FOS fees will be imposed.
“Given that the FCA is already working on options for a comprehensive redress scheme, the FOS should have waited until the judgment is handed down and the FCA’s position made clear.”
He argued that many complaints were submitted as “a last resort” because financial services companies ignored FCA rules and did not supply complainants with information at the outset of a complaint.
The SRA last year introduced fee caps for handling financial services mis-selling claims, mirroring those already applied for CMCs.
Leave a Comment