The Financial Ombudsman Service (FOS) will introduce a £250 case fee for complaints submitted by claims management companies (CMCs) and other professional representatives.
Meanwhile the Financial Conduct Authority (FCA) is consulting on stricter rules for these firms to meet when submitting complaints, including dismissing them en masse when poorly evidenced.
However the regulators rejected strong arguments from across the financial services industry to match the fee to the same level of regulated firms, which is £650 per case for the 2024-25 year.
And to soften the blow it is increasing the free case provision for CMCs and other professional representatives from three to 10 cases per financial year.
The fee is intended to address poor behaviours seen by regulators from these groups, including better addressing mass redress events, and will be reduced to £75 if the outcome is in the consumer’s favour.
FOS will remain free for individuals submitting cases themselves or with the assistance of voluntary organisations.
Parliament and the FCA need to approve the measure before the fees can be introduced, although that is expected in the coming months after initially being delayed by the election this summer.
‘Not properly evidenced’
The FCA and FOS issued joint responses on the issue today, outlining why the fees were necessary and as part of an overall strategy on mass redress events.
The bodies reiterated research which has shown the vast majority of complaints FOS received from professional representatives were not upheld in the consumer’s favour, which was worse than consumers who complained directly without representation.
And they highlighted some of the key criticisms of CMCs and professional representative (PRs) which were adding to their workloads and meaning consumers were missing out.
“Mass redress events have helped to establish the claims management industry, which is very active in financial services claims,” the FCA said.
“The greater the proportion of complaints represented by PRs, the lower the proportion of final redress paid to consumers overall, with some PRs charging up to 30% of the redress award.
“We have heard concerns from industry stakeholders that when mass redress events occur, large numbers of complaints are referred to the Financial Ombudsman which may not be properly evidenced or substantiated,” the FCA added.
It also noted that if the ombudsman observes poor behaviours by certain PRs, it will inform the FCA and the Solicitors Regulatory Authority.
“By adopting this new fee structure, the Financial Ombudsman aims to establish a fairer funding model for professionally represented complaints brought to its service that will ensure it has sufficient resources to carry out its statutory purpose of resolving complaints quickly and with minimal formality,” the FCA said.
Stricter rules for CMCs
As part of its consultation, the FCA also asked if CMCs and PRs should face stricter requirements when submitting complaints.
“For example, if a consumer decides to use a PR, the Financial Ombudsman could decide not to accept a complaint and allow time to continue ticking on the relevant time limit for bringing the complaint if it is not well evidenced,” the FCA continued.
“Once the complaint is well evidenced, the Financial Ombudsman could accept the complaint and treat the complaint as having been referred to the Financial Ombudsman for the purpose of the relevant time limit.
“Alternatively, the dismissal grounds could be amended to enable the Financial Ombudsman to reject complaints collectively without individual consideration where commercial representatives such as a PR send poorly particularised cases in volume in bulk or if they are not well‑evidenced,” it added.
Treat CMCs equally
Publishing feedback to its May consultation on CMC fees, the FOS revealed that 100% of financial services industry respondents agreed it should enact a charging regime, with 78% saying it that should be equivalent to the respondent business case fee of £650 for the 2024/25 financial year.
They stated that CMCs and other professional representatives were commercial entities and therefore should be treated on a more equal basis to that of respondent businesses.
The group also argued this would equate to a fairer apportionment of the FOS costs and encourage better behaviour from CMCs and other professional representatives.
Unsurprisingly, 99% of claims management industry respondents opposed a charge of any kind and all of this group also opposed the proposed £250 fee level.
They argued it would make it economically unviable for claims management activity for a significant proportion, if not all, complaints that could be referred by CMCs or other professional representatives.
This group also said they would be unable to afford this case fee level, given their operating expenditure and how much they were allowed to charge for claims in light of relevant regulations in place.
Consumer group backing
Ultimately, most consumer groups and charities that responded supported the FOS proposals, advocating that it would be in consumers’ best interests, although they were wary of unintended consequences for consumers.
This included the risk that the action might inadvertently impede or restrict access to CMCs and other professional representatives for consumers who might require representation or choose to employ it.
Those that voiced these concerns urged the FOS to ensure adequate protection can be introduced to counter this by working with the regulators and relevant industry bodies as proposed.
‘Equitable funding model’
Concluding the FOS said: “We feel that this maximum fee level for CMCs and other professional representatives is a proportionate contribution to our costs, based on the key cost considerations that we set out during our consultation.
“It will help ensure adequate resources continue to be available to meet our statutory purpose of resolving disputes quickly and with minimum formality.
“We also believe that distributing our casework costs in this way will establish a more equitable funding model that supports the timely and effective resolution of all cases, encouraging behaviour from CMCs that is focused on resolution and co-operation with our case-handling approach.”
It added that 81% of CMCs and other professional representatives refer fewer than the 10 free cases limit which guarantees it would only be larger scale CMCs and other professional representatives that will be liable for a fee.
The fee amount and free case provision will be reviewed annually as part of the FOS yearly strategic plans and budget, and it is considering a suggestion to waive the case fee in exceptional circumstances where it is appropriate.