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Court puts bite on watchdog

A county court judge has echoed what many advisershave said for years, suggesting it is unfair for advisers to pay a case feeif a misselling complaintis rejected.

Since the Financial Ombudsman Service was created, advisers have been arguing strongly that firms should not suffer a financial penalty when they havenot committed any wrongdoing.

Now Judge Mark Rutherford at Trowbridge county court has ruled that the FOS’s practice of charging firms for the cost of dealing with complaints that are rejected to be “unfair in principle and in practice”.

Judge Rutherford said:”No reasonable public body would maintain andenforce such a rule.”

The FOS brought the case against husband and wifeIFA team Dolly and Brian Pickering who run Chippenham IFA Heather Moor and Edgecomb after the couple refused to pay four case fees of £360 each.

FOS spokeswoman Emma Parker says the service will appeal against the decision and insists that firms are obliged to continue to pay their case fees, regardlessof the outcome.

The ombudsman service was ordered by the courtto pay £2,812 in costsBut law firm Shakespeare Putsman partner Gareth Fatchett says until the appeal is heard, advisers should refuse to pay fees when their case is rejected.

He says: “I would advise FA firms who are being asked to pay the case feeto refuse and ask for the matter to be referredto court.”

Fatchett adds that whileit is widely known thata county court decision does not set a precedent, firms should not ignorethe judgment.

He says: “It is at county court level but it is not a reason to do nothing. The case obviously would notbe heard in the high court because the value is onlya few hundred quid.”

Fatchett says in previous cases he is aware of, when advisers have contested paying case fees, the FOShas backed away from this type of courtroom confrontation because it was worried about the implications of losing.

He says: “They are not collecting tens of thousands of pounds, they are collecting little pieces of money and I think that is a problem for them. It is not economic and that pointsto the argument that people should be able to attack it and say we are not paying.”

He says the FOS was claiming a big sum from one of his clients and when it became clear that thefirm was willing to go to court, it settled without prejudice and withdrewthe claim rather than pursuing the case.

Aifa deputy director general Fay Goddard is cautious, suggesting that advisers should continueto abide by the current structure. She says if the appeal is upheld, it may cause a radical overhaul of the way the FOS is funded.

Goddard says: “You haveto remember that most complaints are not upheld. If you have a situation where only if you lose the case the fee is payable, you would have to revisit the whole funding structure.”

The eventual appeal findings may settle the matter but there is doubt over how long it will take for the FOS to secure a hearing.

Compliance consultant Adam Samuel says the FOSis unlikely to be grantedan expedited hearing within the next 12 months because it was found tohave wasted a May 2007 court date.

It was ordered to pay £2,727.55 in costs after failing to disclose documents in sufficient time, causingthe original hearing to be abandoned in May 2007.

Samuel says: “This sortof sloppiness is pretty unforgiveable. I doubtthat the FOS will be ableto secure an emergency hearing in the Courtof Appeal.”

He says the FOS needs to explain publicly why it wasted the hearing in May and incurred the costs.

He says: “This raises issues of public accountability because other firms are effectively paying this.It is also not a great way to endear oneself to a judge. This type of behaviour is jeopardising the interestsof FOS fee-payers.”

Samuel warns that if the FOS were to change its payment structure so that firms only pay for cases that are upheld, many small firms could be worse off.

He says: “Does the industry really want tohave the FOS incentivisedto uphold complaints,even if by just suggestinga further £20 for distress and inconvenience?

“A significant leap in the case fee could do significant damage to small firms.A £1,200 fee in the event of losing a case would place huge pressures on firms to concede marginal cases.”

But Highclere Financial Services partner Alan Lakey describes the ruling as”a victory for common sense over mindless bureaucracy”.

He says: “These small victories are gradually turning back the clock tothe pre-FSMA days when the various ombudsman bodies had to comply with British law and the onus was onthe complainant to provean allegation.”

The issue of perceived unfairness was also heightened last week when Money Marketing revealed that the FOS only finds an averageof 10 cases a year out of 100,000 to be frivolousor vexatious, meaning the adviser escapes the fee.

Parker claims this is dueto the initial screening process which weeds out86 per cent of complaints.

But Lakey says the process can only cull complaints that are very obviously unreasonable, and consumers can easily ensure their complaint is investigated which means that the adviser is hit with a case fee.

He says: “The secret is just to get the FOS to look ata complaint and that canbe done by wording it in such a manner that they cannot dismiss it atthe initial stage.”


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