The Financial Ombudsman Service will ask for a levy increase of up to £30m if firms stop paying case fees pending the outcome of the British Bankers’ Association judicial review into payment protection insurance.
The FOS this week published its consultation on its annual plans and budget for 2011/12, outlining plans to freeze the £500 case fee, paid after three cases, and the total levy paid by the financial services industry.
But the FOS has not ruled out an increase to the levy following a judicial review into FSA PPI complaint measures launched by the BBA last October.
As a result of the review, some businesses, most notably Lloyds Banking Group, have decided to stop handling PPI complaints until the review is complete.
The ombudsman says if more firms follow suit, the loss of income from case fees in just one month could lead to an operating monthly deficit of up to £4m, which would exhaust its reserves within six weeks.
The FOS says: “The consequences of this for the ombudsman service in the current financial year and in 2011/12 could involve an amount totalling between £10m and £30m – well in excess of our reserves.”
The ombudsman expects reserves to fall from £14m at the start of the financial year to around £6m at the end of the financial year.
An FOS spokeswoman says the FOS will recommend to the FSA that the additional levy be attributed to the fee block that generates most of the FOS’ workload. For PPI, this would be the banks and other PPI providers.
She says: “We are trying to get an idea of the workload. The FSA generally apportions the levy on where the workload is coming from. That is what we are rec-ommending in this case.”
Aifa director Robert Sinclair says: “Our member firms are still dealing with complaints and if the banks are acting outside the rules, it is that fee block that should pay for any levy increase.”