ABI questions need for FOS levy increase

The Association of British Insurers has called into question whether the Financial Ombudsman Service needs to raise the levy to cover the costs of future payment protection insurance complaints.

Last month the FOS published its consultation on its annual corporate plan and budget for 2011/12.  It outlined plans to request an increase of up to £30m in the industry levy if firms stop paying case fees pending the outcome of the British Bankers’ Association judicial review into PPI.

The FOS warned that its reserves would be exhausted within six weeks if firms decided to stop co-operating on PPI complaints.

But in the ABI’s response to the consultation director of life and savings Helen White says: “We welcome the FOS’ commitment to improving its operational efficiency. However, we do question whether the FOS’ request to substantially increase their reserves – and thus the levy on firms – is actually required.

“The main reason for them wanting to do so is the impact that the banks’ judicial review of PPI complaints may cause. Yet the FSA has already confirmed that it expects the majority of PPI complaints to be dealt with by firms, so the FOS is unlikely to see a significant reduction in case income.”

White adds the FOS should explain why an overdraft facility cannot be used instead of raising the industry levy.

The BBA launched a judicial review into PPI complaint measures by the FSA and certain decisions made by the FOS in October, with the trade body and the regulator putting forward their respective cases at a High Court hearing in January. The ruling is expected over the coming weeks.