Changes at the FOS

Commentary | 08/12/23

Earlier this week, the Financial Ombudsman Service (FOS) published its Plans and Budget consultation for 2024/25. While these are first steps, we believe that they are heading in the right direction. 

The consultation details changes to the organisation’s funding model, including a £100 reduction in the case fee, a decrease in levy payments and plans to consult on charging professional representatives, which include Claims Management Companies (CMCs), to bring cases to the FOS. 

We have been working on reform of the organisation and the complaints system for some time. Members will know that we have engaged with the FOS from the board level to the frontline teams interacting with firms daily, so it is good to see some steps in the right direction.  

Firstly, it is good news that the proposed case fee is set to drop as this affects all firms. Businesses have endured year-on-year increases in recent times. We have often discussed the burden the case fee places on firms, particularly for small and medium-sized businesses, so it is promising that the FOS wants to try to bring this down. 

It is also promising that the Ombudsman will move forward with plans to charge CMCs to access its service. CMCs have long been a feature of the alternative lending market. 

We have raised the poor practices shown by some CMCs again with the FOS and those responsible for regulating the sector. Firms see many poor cases brought by CMCs due to the lack of incentive to submit a higher quality claim when they bear none of the financial cost. 

Lenders have struggled with poor practices, including receiving a high volume of cases where they have no record of the customer ever taking a loan. There have been concerns that customers weren’t even aware that CMCs were bringing cases in their name, as the proper authority has not been obtained. This put a significant strain on many businesses so it is good to see that they will now be charged a fee. Hopefully, this will encourage them to bring forward only legitimate cases.  

Firms will still pay a case fee in these circumstances, but CMCs will also be charged if these proposals move ahead. FOS are seeking views on the amount as part of the consultation.

These changes could be significant, but they are still at the consultation stage. Some of the proposals would need secondary legislation to be laid before Parliament by HM Treasury before they could be implemented. Still, it is promising to see the start of that process with some publications from the Government in recent days. 

As you would expect, we will continue to engage with the FOS on its plans. Our CEO, Jason Wassell, will attend the FOS Industry Steering Group next week to discuss these proposals in more detail. And the association will also submit a formal consultation response.  

We encourage members to do the same or share their views. If we can demonstrate how these changes would help firms and better support those customers that need the assistance of the Ombudsman, there is a stronger case for reform.