The Financial Ombudsman Service (FOS) has recently proposed changes to its fee structure, which could significantly impact Claims Management Companies (CMCs) and other professional representatives who bring cases on behalf of consumers. These proposed changes are designed to create a more balanced and fair fee model, where the costs of resolving disputes are shared more equitably among those who use the service. These proposed changes have been strongly objected to by the Claimant lawyer community who consider that the introduction of such fees is likely to create a significant restriction to individuals access to justice.
Under the new proposals, CMCs and professional representatives would be required to pay up to £250 to lodge a case with the Ombudsman. However, if the case is resolved in favour of the consumer, this fee would be reduced to £75. It’s important to note that these fees would only apply to professional representatives, Consumers who bring cases directly to the Ombudsman, as well as families, friends, charities, and voluntary organisations acting on their behalf, would still be able to do so free of charge but those consumers who are vulnerable or simply prefer to instruct a solicitor to do the work for them may struggle to find legal representation if the changes are brought in.
Currently, financial services firms pay a fee of £650 for each case brought against them, regardless of the outcome. The proposed fees for applications to FOS brought on behalf of clients by CMCs and professional representatives are intended to ensure that consumers also contribute to the cost of the service – essentially reducing the penalties that a financial institution has to pay by passing it on to the innocent consumer. JLG considers this to be fundamentally unfair. especially given that a significant proportion of complaints brought by them do not result in a different outcome for the consumer.
One of the key reasons for this proposed change is to encourage professional representatives to be more selective about the cases they bring forward. The Financial Ombudsman Service has found that cases brought by consumers directly are more likely to result in a better outcome for the consumer than those brought by CMCs or professional representatives. Moreover, when complaints are upheld, CMCs often take a significant portion of the compensation awarded, which consumers could keep in full if they handled the complaint themselves.
The proposed fee structure also includes a provision that all professional representatives will be allowed a derisory three free cases per year, similar to the current arrangement for financial firms. After that, they would be subject to the new fees. This however achieves nothing for law firms acting on behalf of hundreds of thousands of individuals. If the consumer’s complaint is not upheld, the higher fee collected from the consumer professional representative will be used to reduce the fee for the financial business against whom the complaint was initially raised. This is particularly concerning given how many financial business refuse to provide requested information in relation to the secret commission models they use, so the consumer has no way of knowing how much abuse they were subject to and will not need to pay a fee in order to glean that information.
This move comes as the government begins to exercise powers under the Financial Services and Markets Act 2023, which allows the Ombudsman Service to update its fee-charging framework but comes immediately after the Solicitors Regulatory Authority imposed a fee cap on the amount solicitors can charge for this kind of work. The combination of that fee cap and the proposed changes is likely to make it financially impossible for people to seek legal advice in relation to their mis-treatment by banks and finance companies. aim to create a fairer system that reflects the actual costs of resolving disputes and ensures that those who benefit from the service contribute to its sustainability.
The consultation process on these proposals, where the Financial Ombudsman Service invited feedback before finalising the new fee structure, would seemingly have ignored the concerns raised for the many groups representing wronged consumers.
Jamie Patton, Managing Director at Johnson Law Group said: “If this goes ahead it will be a massive travesty causing untold damage to customers of financial institutions such as banks and insurers to seek financial redress for their mis-treatment. It will literally kill access to justice for hundreds of thousands of people.
“The Financial Ombudsman Service have seemingly ignored the very strong representations made by Solicitors acting on behalf of Claimants during the consultation process it initiated to discuss this proposal suggesting that this was already a fait accompli! It does not take a genius to work out that what FOS are proposing will massively reduce the amount of people making claims and yet it is continuing on regardless. It smacks of an under-resourced and over-burdened independent public body that has resorted to closing its doors on legitimate complaints rather than looking at fixing the problems it has internally.
“It has also played directly into the hands of the financial institutions it is supposed to hold to account.
“It is my view that a successful judicial review overturning this rule change is inevitable. But in the meantime, it is the consumers who will suffer due to all the uncertainty this causes. Thanks for nothing FOS!”