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Alan Lakey: Time for a modest FOS complainant fee

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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There are 24 comments at the moment, we would love to hear your opinion too.

  1. 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.

  2. 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.

  3. 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.

  4. 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!

  5. Neil F Liversidge 10th January 2012 at 11:45 am

    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.

  6. 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?

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

  8. 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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  10. 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.

  11. 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.

  12. A well thought out article but unfortunately common-sense and fairness don’t seem to count for much in our industry. You are always popular when you are handing out other peoples’ money and being handsomely rewarded in the process! The compensation lawyers are on a win-win situation here as it costs neither themselves or their clients any money whereas product providers and advisers are always going to incur costs regardless of the merits of the case.

    It reminds me of a situation I personally encountered over 18 months ago when I was involved in a minor road accident and my wife and I luckily did not incur any injuries. However, the repair garage obviously tipped off the compensation lawyers and I have lost track of the number of telephone calls I have received exaulting me to make “whip-lash” compensation claims. As a matter of principle, I have refused to do so, but we know from our own experiences that I am probably in the minority. The result is that we are now faced with much larger motor premiums to pay for this nonsense.

    I make this point as it seems that it is not only the Financial Services Industry that has been left vulnerable to the vultures of the compensation culture but unfortunately there seems very little appetite amongst the politicians to stop it.

  13. As a “claims handler” who is authorised by the MOJ I have been entirely underwhelemed by the quality of complainants, of course there are one or two I have dealt with over that last 10 months who are genuine but the unsavoury fact is that the rest are just trying it on. I have to tell them to take a long walk off a short pier, or is it Pierre?

    It is such a lousy occupation that I am about to thrown in the towel. It stinks, and what makes it worse is the people who used to do the ‘mis selling’ and now ‘handle’ the claims.

    What has regulation done for society?

    Naff all.

  14. Unfortunately we live in a world where very few people want to be responsible for their actions. In addition, we used to laugh and scoff at the USA where the ‘free’ legal system allowed vexatious claims to be met with huge settlements on a no-win, no fee basis. It’s now been here for several years.

    The current compensation culture is encouraged by the approach taken by FOS which seems to arbitrarily determine the ‘facts’ of a case on the basis of what it thinks might have happened.

    This is a flawed approach and whilst I agree that the larger burden should probably fall on the advising firm [because it should evidence its advice and reasons for such] there should be a corresponding requirement for a complainant to provide compelling evidence.

    Claims handling firms using a fomulaic approach should be dealt with in a most suspicious fashion. As has been mentioned, many insurers cough up because it is cheaper to settle. I want to see a more robust approach.

    We had a claim from a complaint company only a week after we commenced trading but based on an endowment that was arranged 18 years previously by another firm. The only ‘evidence’ was that we were the current servicing agent per the insurance company’s records. What a load of rubbish but we still had to waste our time dealing with the matter.

  15. Disgruntled IFA with FSA & my peers 11th January 2012 at 12:40 pm

    Are you kidding me… we have to wake up and smell the coffee… customer compliants in any industry vary in their credibility, as a sector we have done enough damage to incur the slew of regulation.. any suggestion of this nature will be the straw that breaks the camels back.. we are already at odds with the FSA, this will actually provide great spin to Which magazine and the ilk who purport us to be customer unfriendly, commission generating product floggers… Mr. Lakey if you did a Fact Find of the IFA brand you would reach the conclusion that your suggestion/advice in this intance was Not Suitable!

  16. Dear Disgruntled IFA

    Surely you will realise that the RDR will solve all of these terrible problems. The dodgy commission junkies and salesmen will be bundled out leaving a sterile fee-only environment where advice and client satisfaction will thrive.

    Given that the problems of yesterday will be removed, just like that, there is no longer a need to treat the financial sector like third-world primitives. We can be given back our human rights and treated fairly.

    Of course, claims parasites will still writhe across the financial services floor so there has to be some mechanism to solve the relentless torrent of opportunistic complaints and try-ons that wreak so much havoc and cost so much to deal with.

  17. @Peter Turner.

    Peter, I spoke with Ombudsman Chris Tilson and asked him whether FOS ever reports complainants when they suspect fraud. He told me it wasn’t within their remit.

  18. The Business Secretary, Vince Cable, recently outlined the government’s “major plans” for employment law reform. These plans include: requiring employees to submit complaints to ACAS for pre-claim conciliation before a tribunal claim can be issued. What a good idea. Perhaps this can be applied to FOS as well!

  19. Interesting discussion, but I fear that no set claim fee will ever come to fruition. Despite the merits of the suggestion, it would make the proposers highly unpopular with consumers. Remember the popularity of the imposition of dental check-up fees?

    Peter / Alan – the situation re FOS and fraud is frankly disgusting. In my opinion they have a moral duty to report fraudulent complaints to CIFAS or the relevant equivalent. Same goes for providers and fraduluent claims.

    You’d think that morally an insurer should have the right to claim damages for investigating a fraudulent claim, but no one has ever sued and the law is so convoluted on this issue, which is why the Law Commission is set on changing it. I hope they succeed.

  20. A fee of between £250 and £500 would be reasonable for most people. This of course would be reinbursed if the complaint was upheld. I believe that anyone who feels justified in making a complaint would somehow find the money knowing they will get this back eventually. It is far too easy for fraudulent claims by people ‘jumping on the bandwaggon’

  21. God, hope no clients read this drivel. Makes you realise just how far we all have to go to become a ‘profession’.

  22. As the FOS fee system evolves toward fairness I think a good interim arrangement would be to have claimants make a “deposit” when they submit a complaint. The deposit would be refundable unless there is any good reason to suppose incorrect information has been given to the FOS, or relevant information has not been given etc. Okay – so the adjudicator or ombudsman would make this decision, and we know how forgiving they are toward consumers. However, it would be a deterrent, and industry personnel could lobby for the deposit to be retained by FOS. What we all want is for claimants to be honest, and probably we shouldn’t mix that goal up with fee paying at this stage. What we also want is for FOS personnel to wake up, and realise how often claimants omit info or put a spin on it. A deposit would help address those problems.
    By the way I prefer claimant to complainant – I think that’s more honest. Many people are hoping first to claim money, and secondarily they hope they have a complaint which will achieve that for them.

  23. The obvious compromise would surely be a FOS regime where complainants in person pay no fee. Complaints submitted by a third party CMC are charged a fee of perhaps £250 which is refunded if the complaint is upheld. This would have the advantage of discouraging spurious complaints without disadvantaging consumers.
    The more professional claims firms (one of whom I work for) would have no issue with this as it would show those third parties who actually investigate a complaint and those who adopt a scattergun approach hoping that they will strike lucky.
    There is a lot of vitriol directed at claims firms on here but remember, just as there are good and bad advisors there are good and bad claims firms – the problem is that currently its too easy to open and run a poor claims firm. Tighter regulation would benefit the consumer, good advisers and professional claims firms.

  24. “Tighter regulation would benefit the consumer, good advisers and professional claims firms”

    Just like it has in Financial Services?

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