Financial Ombudsman plans to charge claims management companies

The ombudsman considers charging claims management companies following a surge in cases brought by CMCs representing consumers.

The Financial Ombudsman Service (FOS), which handles consumer complaints about financial products, 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 ombudsman 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. James Dipple-Johnstone, Deputy Chief Ombudsman at the FOS, 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.’

Consumer Voice last week reported that the ombudsman estimates around 90% of its complaints about car finance commission payments have been brought by ‘third-party representatives’ – claims management companies or law firms.

New powers for FOS to charge case fees to CMCs

The proposal comes a day after the ombudsman was given new powers by the Treasury 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.

A free-to-use service for claiming compensation

While the ombudsman recognises that some people may choose to use a CMC or professional representative, it has warned that doing so could reduce a person’s compensation by up to 30%, or more if they are regulated by the Solicitors Regulatory Authority.

Dipple-Johnstone 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.’

Our guide to using CMCs provides more information on what to expect when using a CMC and when to consider free alternatives to ensure you keep all of your compensation.

Fees for CMCs

The ombudsman 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.

£60 million cut in case fees

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.

The first three complaints made to the ombudsman about a financial company are handled for free in any given year. After this, the ombudsman charges fees to financial companies for complaints it investigates, regardless of the outcome. 

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.

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