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FOS could raise levy by £30m over BBA action

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.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. I think I know what would happen if I refused to pay the fee…

  2. If the issue is sub-judice, then the banks are (I would have thought) legally entitled to stop paying any further case fees. I imagine they’ll surely have taken legal advice before declaring such a position.

    The FOS should therefore write to all new complainants informing them that as this is now the case, they are unable to handle any further complaints until it is resolved. By continuing to run up costs by responding to complaints, might it be argued that the FOS is in contempt of court?

    Alternatively, if the FOS has established from its own legal advisers (and God knows, the FOS certainly isn’t shy of throwing other peoples’ money at its lawyers) that the banks are NOT actually entitled legally to withhold payment of further case fees, then why doesn’t it (or the FSA) do to them what it would without hesitation do to any IFA firm or Network?

    Anyone out there know?

  3. BUT WHAT ABOUT THE BANKS JULIAN?!? THE BANKS!! WHAT ABOUT THE BANKS GODDAMMIT, WHAT ABOUT THE BANKS?!?!

  4. A very good question Julian. Haven’t the FSA withdrawn permissions from IFAs & brokers for unpaid fees in the past?

    Lloyds wrote to one of my clients about putting their PPI claim on hold, until the judicial review outcome, however in the last few days, out of the blue, they’ve had a letter offering to settle!

  5. David hargreaves 15th January 2011 at 9:56 am

    I run a substantial ppi claims company with 35% of complaints being against lloyds. This statistic alone of course says a great deal about lloyds however this is not my point. Over the last few months lloyds have simply stopped processing even the most ott mis-sold ppi however last week almost all the claims on hold were upheld by lloyds. Our major concern is that a number of our clients are in severe financial distress with a number losing their homes. Tragically we have had a very small number of suicides directly linked to the banks refusing to pay what they owe. The banks are simply using the so called judicial review to avoid paying what they owe. It’s a cheap tactic that is what have grown to expect from these rogues

  6. The banks want it both ways, they dont want to pay out compensation yet they expect you to pay them the money you owe. I worked in a ppi claims company and they had customers who are still paying insurance on personal loans who were clearly mis sold the insurance(Retired).

    The BBA said the policy was like having a road with a speed limit of 30mph, which was later changed to 20mph, and deciding to hand out speeding tickets to people who drove at 30mph before the limit was reduced.

    I state that the way the banks are behaving is more like “that they are steeling the cars and driving at 100 trying to out run the police.”

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