The Financial Ombudsman Service (FOS) is proposing to cut the rate of interest charged on penalty awards made to customers who it judges have been disadvantaged by financial services firms.
It has laid out four options, one of which is to retain the current 8% fixed rate.
Its preferred version is an average tracker rate linked to 1% above the Bank of England Base Rate which is currently sitting at 4.25%.
This would be applied over the period the money was due until the payment is made.
The regulator also suggested the option of another lower fixed rate or a different Bank of England tracker rate plus 1%, but this rate would be calculated at the point of determination of the complaint.
The FOS also gave four options for when any change would be applied, with its preferred option being to apply the rate to complaints referred to it from the date the new rate is implemented.
Other options were to apply any change to all existing cases, only where the complained about act occurred after the implementation date, or only to customer losses occurring after the implementation date.
‘Balance of simplicity, fairness and proportionality’
Interim chief ombudsman James Dipple-Johnstone said: “For many years, we have applied a standard 8% interest on compensation awards. If we think a different interest rate should be used, we explain why.
“While applying the standard 8% interest has provided consistency and clarity, it is increasingly important to assess whether it continues to deliver fair outcomes in today’s economic environment.
“We received feedback in the recent joint Financial Ombudsman Service/FCA Call for Input that suggested we should look at reviewing the interest rate and how we apply it.
“We are committed to transparency and accountability. Therefore, we are consulting with consumers, firms and stakeholders who use and are affected by our service to assess whether our proposed recommendation to transition to a new standard interest rate calculation that tracks the Bank of England base rate achieves the appropriate balance between simplicity, fairness and proportionality.”
The consultation is open until 2 July.