Claims management companies are set to avoid paying an annual levy to the Legal Ombudsman as the Government rejected pleas from the House of Lords last week.
Labour peer Lord Witty proposed an amendment to the Financial Services Bill that would have seen claims firms pay an indirect levy to the Legal Ombudsman.
All financial services firms are forced to contribute the Financial Ombudsman Service through their FSA levy and pay a case fee of £500 after three cases a year, although this is increasing to 25 from next April. Network members get no “free” cases/
In August the Government decided complaints against claims firms would be handled by the Legal Ombudsman from next year. It will have greater powers to fine firms up to £30,000, rather than simply refund fees as is currently the case.
The Ministry of Justice regulates claims firms and as a Government body it is banned from paying a levy in to the ombudsman as it could impact on taxpayers. Claims firms will therefore only pay case fees, as things stand.
Whitty’s amendment sought to allow claims firms to pay a levy to the MoJ and then pass it on to the ombudsman with no taxpayer cost.
He is concerned that the bill for complaints about claims firms will then be picked up by legal firms who pay a levy to the ombudsman.
He said: “The legislative change needed to facilitate this must happen immediately so consumers are not left with no course of redress. It is necessary so the ombudsman can handle complaints as well as hand intelligence back to the industry to drive better practice.”
Whitty wants the levy to come into force with immediate effect when the Financial Services Bill is passed next year.
But responding for the Government, deputy chief whip Lord Dick Newby said: “Under this amendment the wider legal profession would benefit because case fee generated by the ombudsman from claims firms would be deducted from the levy they pay.
“The Government’s position is clear – the wider legal profession should not bear the cost of complaints about that claims sector. The arrangements we put in place will be consistent with that principle.”
A spokesman for the Legal Ombudsman say: the simplest way of funding the service would be through a levy but this seems unlikely to happen.
He says: “If we can’t fund it through a levy then there would have to be another way. We are a bit concerned if it is not going to be funded through a levy and want to know how it will be resolved.”