UK Financial Ombudsman proposes charges for claims management companies

The proposals to change its fee structure are set out in a recent ombudsman service consultation (35-page PDF/1.6MB). The changes could mean that, for the first time, CMCs and other professional representatives will need to pay up to £250 to lodge a case. The fee could be reduced to £75 if the case outcome is in favour of the consumer. Submitting a case to the FOS would remain free for individuals who bring their cases directly as well as voluntary organisations that are helping them.

Currently, businesses responding to a complaint pay £650 per case. The proposed changes will be most welcome for financial services firms, according to financial services regulatory expert Anthony Harrison of Pinsent Masons, as they often have to contend with CMC complaint referrals which often have little merit, but which can result in significant FOS case fees being incurred.

“It can be particularly costly for financial services firms where such referrals are made in high volumes. Charging a fee for professional representatives to lodge cases will hopefully encourage greater rigour in referring cases of genuine complexity and merit where CMC expertise can add value for a customer, rather than the current position in which the FOS case fee has been leveraged to compel firms to settle before referral to the Ombudsman,” said Harrison.

In the consultation paper, the FOS said it is seeking to make its fee model “fairer” by recovering some of its costs from CMCs and representatives as well as financial services firms, following an analysis of the recent performance of CMCs in FOS cases. Based on data available since 2022, the FOS found that even in areas with high CMC involvement like hire purchase and personal loans, on average CMCs and other professional representatives only obtain an outcome in favour of the complainant in 22% of their cases. This is lower compared with the average success rate of 32% when consumers brought their cases without representation.

Nicholas Kamlish, financial regulation specialist at Pinsent Masons, said that most cases do not need CMC expertise, as the FOS is meant to be simple for consumers to use. He added that there has been an agenda of consumer protection in relation to CMCs for various regulators. For example, under the Consumer Duty, the Financial Conduct Authority (FCA) aims to ensure customers receive good outcomes and fair value, and it has therefore taken steps to restrict the activities of CMCs, including requiring them to state prominently that consumers can use the FOS for free and restricting CMC fees to 30% of redress up to a maximum of £10,000. The Solicitors Regulation Authority (SRA), meanwhile, is intending to introduce a similar price cap for relevant legal professionals.

“The FOS’ proposals are aligned to a regulatory agenda of consumer protection in relation to CMCs. Financial services firms will also welcome the FOS’ proposals to reduce case fees from £650 to £475 in cases where CMCs bring unsuccessful claims, reducing CMCs’ ability to ‘weaponise’ FOS case fees,” he said.

The proposed changes to the FOS’ fee-charging framework are made with the powers given under the Financial Services and Markets Act 2023. The consultation will close on 4 July 2024, and the FOS is expected to finalise proposals in the autumn.