FOS consults on charging CMCs

A general election wasn’t the only announcement we saw in late May. The Financial Ombudsman Service (FOS) also published its next consultation on plans to move forward with charging professional representatives, including Claims Management Companies (CMCs), to access their service. We, along with many CCTA members, responded to the last consultation calling for action to be taken.

The FOS are consulting on a £250 case fee charge for CMCs. If a CMC wins a case, that would be reduced to £75. If the CMC loses, the £250 would be used to reduce the lender’s fee. CMCs will be allowed three free cases a year, like all other financial services firms. The service remains free to those who bring their case directly to FOS as well as families and friends, charities, and voluntary organisations who may be helping them.

We welcome plans to move ahead with charging CMCs but don’t see why they would be treated any differently from lenders. For that reason, we think the full case fee of £650 should be applied to CMCs when bringing a case to the FOS. We are supportive of the principle that there could be some form of discount in the fee if the CMC is successful in their case.

Over the last two years, over 20% of cases referred to the FOS have been brought by professional representatives. Of these cases, fewer than 25% result in a different outcome for the complainant than they have already been offered by the responding firm.

The consultation tells us that consumers achieve a better outcome when they complain directly, rather than using a CMC. (32% of consumers bringing their case without representation achieve a better outcome). Obviously, we want to address the unfairness of the system but hopefully improve CMC behaviour to deliver a better experience for consumers too.

And there is also a role for the wider industry to play in educating consumers that they do not need a CMC to represent them. Where complaints are upheld, CMCs and professional representatives take a significant proportion of redress awarded to their clients. Consumers would keep the full value of any redress awarded if they brought the case to directly to the FOS.

These companies can send in large volumes of cases with little prospect of being upheld and they are often poorly presented. This can have a significant impact on the FOS’s ability to help others who have come directly, and drives up the Ombudsman costs.

For too long these firms have been able to submit claims of a poor nature, because win or lose the lender will have to pay the case fee. The CCTA has been calling for change over recent years with HM Treasury, the FOS and the FCA.  The introduction of a fee should act as a deterrent for firms to submit poor quality claims and reset the balance.

We will be responding to the consultation and working with CCTA members on their responses. The consultation closes on the 4^{th of} July. The FOS suggests an implementation deadline of 1^st October to introduce charging.