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Companies that handle consumer complaints are set to face charges when they bring cases to the official UK financial ombudsman, after the government rejected their last-ditch plea to prevent the introduction of fees.
City minister Tulip Siddiq told the industry she supports plans to start charging claims management companies to bring complaints to the Financial Ombudsman Service (FOS), in a letter seen by the Financial Times.
The FOS resolves consumer complaints against the financial services sector, such as mis-selling of payment protection insurance or car finance.
The introduction of fees is designed to protect the FOS from being overwhelmed by a surge in claims, but claims management companies warn the fees will be “weaponised” by financial groups to deter consumers from pursuing cases.
The FOS outlined proposals earlier this year to start charging claims management companies and other professional representatives a fee of £250 for every case they bring, which would be lowered to £75 if it rules in their favour. Individual consumers would still have free access to the FOS.
Siddiq rebuffed an appeal by the claims management industry association to abandon at least some of the proposed fees. She said the government was concerned about how such companies have been submitting “significant numbers of poorly evidenced or template responses to the FOS with no financial disincentive for doing so”.
“This impacts the ability of the FOS to resolve consumer complaints in a timely fashion,” Siddiq said, adding that the government would bring the legislation before parliament that is needed for the fees to be introduced.
Matthew Maxwell Scott, executive director of the Association of Consumer Support Organisations, which represents claims management companies and law firms acting for consumers, said he was “very surprised” by the Labour government’s response. “I thought they might have been a bit more consumer friendly.”
He said the fee proposal was “a deliberate attempt” by the financial services industry to “close ranks and prevent industrial levels of complaints [for car finance] — but that’s only because of the industrial levels of misbehaviour”.
Claims management companies, which pursue complaints for groups of consumers in return for a cut of any compensation, shot to prominence over the past decade by helping to raise total cost for banks of mis-selling payment protection insurance above £50bn.
In recent months, the industry has seized on controversy over alleged mis-selling of car finance to bring tens of thousands of claims on behalf of consumers.
In the three months to April, the FOS said it received 15,925 complaints about car finance, almost five times more than the same period last year. It said over 90 per cent of these were brought by claims management companies.
Maxwell Scott called for the proposed £75 fee on successful cases to be dropped. While he said some form of fee was understandable in principle, “charging people who have made a successful complaint is a bit odd”. The existing plans were “not balanced” and “not fair”, he added.
Jamie Patton, managing director at Johnson Law Group, said many consumers were not willing to go through the complaints process without representation, and warned that banks would seek to “weaponise” the fees.
The proposals were “ultimately designed to kaibosh” claimant law firms, he said, describing the government’s approach as “incredible”.
Over the past two years, the FOS said a fifth of all its cases were brought by commercial representatives “who are taking a significant proportion of the awards otherwise due to their clients”. It said only a quarter of such cases achieved a better outcome for consumers than initially offered by the target of their complaint.
The FOS said it was waiting for parliament to approve the necessary legislation before announcing its final decision on fees.