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Alan Lakey: Time for a modest FOS complainant fee

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For some time, I have campaigned to bring the Financial Ombudsman Service into line with the precepts of English law. The FOS works within an approximation of English law, with its determinations using balance of probabilities’ criteria.

One central aim of claim instigators is to persuade people to agree compensation to avoid the matter being escalated to the FOS. The fourth and each subsequent complaint currently costs £500, win or lose, and the cost of investigation can easily run to thousands of pounds. No surprise that insurers often settle rather than incur these costs.

Advisers are cowed less easily and usually argue their corner. Nonetheless, claim instigators know there is a good chance the FOS will discover some “fault” and find in favour of the complainant. This is due to the Utopian concept of “natural justice” and the fact that complaints escalated to the FOS cost nothing - nothing for the complainant or claim instigator, that is.

Latest FOS figures confirm that 83 per cent of all payment protection insurance complaints originated with an instigator.

How do we stop this? One would anticipate the Ministry of Justice sorting it out, although I have my doubts. A better mechanism would be a change to the FOS processes. Sadly, this offers scant potential, given the contemporary appetite for finding in favour of the consumer.

Perhaps the best method is to remove those design glitches that encourage claims. As long as complaining remains free, it will be seen as an easy road to riches for opportunists and instigators. The FOS regularly bemoans its workload, so a nominal complaint fee, possibly £100, would be sufficient to discourage opportunists yet still be low enough to encourage genuine complaints. Such a fee would be refunded if successful, similar to the Abta scheme.

Most advisers would consider even this insufficient due to the stance adopted by the FOS when assessing the merits of a complaint. Some time back, a former adjudicator released details of troubling methodology at the FOS. One related to dispute resolution rule 2.8.2 which time-bars a complainant who was aware or “ought reasonably to have become aware that he had cause for complaint”.

The ex-adjudicator verified that the FOS disregards evidence of prior knowledge, thereby entertaining complaints that should have been rejected as out of time. She also suggested that frivolous and vexatious cases were routinely accepted rather than being dismissed without merit.

If the FOS worked within the confines of the law and a modest fee was used to dissuade the opportunists, then the Ministry of Justice would not be needed because claim firms would have moved on to new victims.

Alan Lakey is partner at Highclere Financial Services

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Readers' comments (23)

  • The now prevalent "try it on for some free dosh" mentality is no better exemplified than by a complaint we received last year in respect of a mortgage-related endowment that the policyholder had surrendered three years earlier and which hadn't even been effected through us in the first place. If that isn't trying it on, then I don't know what is.

    Why, in the face of widespread abuse of the complaints system, will the powers that be not even countenance the idea of a modest complaint application fee? Since when was the MoJ a regulatory body? Does it regulate anything else? Why aren't the activities of claims instigation companies regulated by the FSA? Any commercial enterprise that encourages people to obtain money by making false statements is engaging in a criminal activity, isn't it? Why are the police totally uninterested in attempts at fraudulent claims for compensation?

    This week alone, I've received phone calls at home (and my number is supposedly ex-directory) with a recorded message exhorting me to make a claim for some mis-sale or other.

    It's a rigged deck, the FSA holds all the cards and it's obviously entirely uninterested in making the slightest effort at doing anything at all to stem this latest campaign of assault being waged against both providers and intermediaries. Yet Hector Sants would have us believe that the FSA has no sort of persecutory agenda against the IFA sector. The facts suggest otherwise.

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  • I believe that it is quite right that we have a free arbitration service that individuals can apply to. However, I also believe that the FOS should only make a charge (possibly higher than the current £500) where a complaint is upheld in the client's favour.
    Where the complaint is not upheld then no fee should be charged to the company. This would encourage firms to deal with the complaint, taking TCF fully into account, before going to any arbitration.

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  • I would like to see Andrew Tyrie insist that come RDR the new FCA & the FOS are subject to English Law (not just their version of it). This would ensure that the Long stop is applied & any adviser should be able to appeal against an FOS or FSA decision through the courts.
    It would be very simple to add this on to the new bodies without introducing a brand new Act (actually personally I would like to see a whole new act but no chance of that).
    Whatever the interpretation by the FSA I can not believe that Parliament intended that the FSA is not answerable to Parliament & above the law.

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  • I think any honest adviser will agree that for the good of the industry we should look after clients that have been miss advised, but where you have a client making a unwarranted complaint purely for greed and because someone they don't know has said they are entitled to re-address (when they are not) is totally unacceptable. To my mind this is defamation of character and the adviser has the right to personally sue in the civil courts. Fairs fair!

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  • I've argued for this for years. Other abritration schemes such as that run by the RICS require a fee from th complainant to discourage the frivolous and malicious. The 25 'free' cases is a good victory for AIFA but does not help network members as networks do not, and to be fair cannot, 'share out' the free goes. Requiring a mere £50 would eliminate a lot of the chancers. The first time I had a letter published re' this subject, Walter Merricks had one of his minions call me to explain why in the FOS's view it wasn't a good idea. I as not convinced at the time and I'm still not convinced now.

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  • Surely the easiest and fairest thing would be for the complainant to pay the fees unless they are successful, when the cost is attributable to the losing party?

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  • Excellent idea. Nothing excessive, just £1,000 per complaint to start with.

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  • It simply isn't fair to charge a fee to complain. The system is flawed and encourages complaints, but imagine what consumers would think if a fee were introduced?

    To many people, £50 does not seem much but this can be a lot of money for those on a tight budget so you are effectively preventing the less well off from complaining.

    Claims making companies that make frivolous complaints should have the book thrown at them and there should be no fee unless a claim is successful.

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  • We all hate claims companies freeloading from complainants who simply don't need to use them, trading through a virtually non-existent cost of entry to market (perhaps less so today than a few years ago).

    However, complainants must never be charged a fee simply to bring a complaint even if, as is often suggested, it is refunded if they win.

    It will never happen so we should stop wasting time suggesting it.

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  • Lets face it, a try it on complaint is fraud. It should be treated as the criminal offence it is.

    FOS should not be complicit in that crime by ignoring the evidence or claiming the complainant did not know - ignorance is no excuse.

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