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Would refundable FOS complainant fees work?

The Government’s new plan to make employees taking their employer to a tribunal pay a refundable fee has left a few people wondering if this idea should be applied to financial services complaints.

Under George Osborne’s plans, a fee of between £150 and £250 would be levied on employees to launch an employment tribunal case with a £1,000 charge if it goes to a full hearing. Charges would be refunded if the case was successful.

A few years ago the Conservative Party suggested introducing a small upfront fee of around £50 for complainants to the Financial Ombudsman Service, to be refunded if the claim was successful. The idea was to discourage people from bringing forward unwarranted or speculative claims and so lessen the burden of FOS costs on the industry, particularly small IFA firms.

With advisers having to pay £500 for every complaint above the first three they receive each year, and with network members getting charged for every FOS complaint, there has been growing concern about the effect of claims management companies encouraging complaints that have no merit.

If the FOS judges a claim to be “frivolous or vexatious” a charge is not levied. However, less than 1 per cent of complaints in 2010/11 fell into this category.

Would a small refundable fee make consumers think twice to ensure they believed their complaint was justified?

The obvious concern is ensuring that consumers with valid complaints are not discouraged from launching claims with the FOS.

Whilst the behaviour of certain CMCs in churning inappropriate claims continues to create justifiable anger, the poor claims handling procedures of many of the larger institutions must also be taken into account.

The continued unacceptably high uphold rates seen in the data published by the FOS shows that too many bigger firms are simply fobbing off valid claims and banking on the fact that a certain percentage of these people will not bother going to the FOS.

Rejection letters sent out by banks are often designed to dent the complainant’s confidence to progress further with a claim. Would an upfront fee, no matter how small, do more to scare those who deserve compensation away from the FOS and let misbehaving institutions off the hook?

Others have suggested levying an administration fee on claims management companies who deluge the FOS with complaints. Money Marketing’s sister title Mortgage Strategy is campaigning for CMCs who bring a case to the FOS without merit to be charged the £500 case fee (you can sign its petition here).

Introducing a refundable FOS fee may well fit into the coalition Government’s agenda of helping lessen the burden on small business but politicians would be fearful of anything that appears anti-consumer.

It looks unlikely that such a policy will gain the momentum needed to trouble legislators involved in the current financial services bill. It may lighten the load on IFA firms facing unwarranted claims but the poor complaints handling we continue to see in the wider financial services industry means it would be a very hard political sell.

Paul McMillan is editor of Money Marketing- follow him on twitter here


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Neil F Liversidge 5th October 2011 at 10:28 am

    I have been arguing for commitment fees for at least ten years. CMCs should also contribute to the FOS and pay the adviser’s costs in full when they lose a case. The system was designed to provide fair access to redress for complainants, not to spawn an industry of truthless middlemen. Those who exploit it for profit – CMCs – should pay their way and accept the considerable risks that have to be accepted in the real world by anyone who voluntarily chooses to enter into litigation.

  2. Something has got to be done to stem the flow of claims management companies who are able to make false claims on behalf of their clients, without fear of comeback. I was recently cold called by a company called Actions Direct, who specialise in PPI claims. This is despite the fact that I am registered with the TPS and have never purchased PPI. I complained to the company, and despite an assurance that I would not be contacted again, a few days later I received another cold call from them. I therefore complained again and insisted they investigate a clear lack of systems and controls. In response, they falsely claimed that they had not made the calls (I have a record of the number the calls were made from and it belongs to Actions Direct), and that they were the victim of an attempted fraud by another organisation.

    Clearly these are very clever crooks because they have managed to hack in to Action Direct’s phone system to even make it look as though the calls came from them!!

    People who have been wronged deserve the right to recompense, but at the moment we have a system where financial firms are forced to pay the cost of false claims by paying case fees. It has spawned a multi million pound industry where people are made to believe that they may as well complain about anything and everything because there is no cost or risk in doing so.

  3. Stuart Rae Duncan 5th October 2011 at 10:39 am

    Attempting to obtain money by deception is a crime and the sooner FOS, the FSA, networks and the police start treating it as such, the sooner the CMCs will stop their fraudulent activities.

    We are required to report Financial Crime and all victims should do so.

  4. From my experience CMC’s instigate complaints against banks / IFA’s on behalf of clients through hard sell cold calling and the promise of thousands in compensation.

    They often state in their initial complaint letter that “we did not know our clients circumstances” yet they instigate complaints without knowing anything at all about the client. I saw such a case just recently whereby the client was promised thousands and yet he had only paid £139 in premiums. A clear case of the CMC not knowing anything about the clients circumstances (nor attempting to find out anything about them). Just a letter to the adviser asking for a copy of the file. They didn’t even enclose a fee!

    Sooner they are made to pay a fee for taking cases to FOS the better. Granted, if they win the case then the fee will be refunded by the adviser who provided the advice.

    Many small firms who work within the guidelines and who do treat customers fairly could well be put out of business by CMC’s without any complaints actually being upheld against them!

    If the FSA were to regulate the CMC’s rather than the MOJ I think it would be a different story altogether!

  5. Incompetent Regulators Award Team 5th October 2011 at 11:15 am

    The question is can the biggest ambulance chaser in the UK (FOS) be convinced?

    The staff would lose their bonuses and shed loads will be made redundant as most claims are spurious and when you ask for people to stump up cash they run a mile!

    Bring it on.

  6. Well said Stuart! The most important point often overlooked.

  7. I recently met the FOS along with other IFA firms and individuals.
    This question about CMC’s was certainly raised many times regarding their morals etc and their reluctance to even acknowledge any returns of information from the IFA frim when answering their ‘claims’ — why because no matter how good the advice was from the adviser documented or not — they don’t get paid to consider all aspects of the case as they only get paid when referring the case to the FOS — which the FOS know is wrong
    The problem being here is that the CMC’s are regulated by the Ministry of Justice who really seem not to be bothered by the antics of these companies at all.
    The FOS know that most of these claims are generally “frivolous or vexatious” but they say that although they have sympathy they say that they are tied with legislation for the £500 case fee and therefore cannot change this.
    Well I would say to safeguard fairness to the good IFA firms that legislation needs changing to stop these CMC’s or at least make them accountable.

    I have one such encounter with these firms for another adviser and the CMC had all the facts incorrect and the client actually rang us to say there was no complaint against us — only against the lender (which would not have stood up) but what this CMC did was actually forge the clients signature. When I actually reported this to the compliance director of the CMC — guess what they didn’t reply.

    The issue is that some of our IFA and even Bank colleagues are suffering from thousands of these unscrupulous claims each day placing their businesses and on-going advice to their clients at risk ?

    Please can everyone look at the big picture — we have had endowment complaints — now onto PPI and then to mortgages — then onto pensions /serps/investments risks etc. etc. . I believe that the only reason why they haven’t entered fully into these areas is that they have to be more aware of the products — which of course if you investigate these firms they generally have unqualified personnel working for them. I cannot imagine what will happen with all the changes being forced upon the industry with RDR as claims will just escalate — with less advisers to be in contact with their clients

    If legislation cannot be changed then why cannot the complaints procedures within the industry with providers /advisers and the FSA involved — as a suitable alternative — I am sure that this could work within some reasonable format — just a suggestion.
    One thing is for certain these CMC’s have to be accountable somewhere — even if the MOJ say that the IFA or Financial industry can pursue these firms and each claim were to cost them £500 etc.
    In the meantime if they have not followed the rules accordingly and reasonably then may I suggest that we all complain to their Directors or owners and the MOJ –and copy the FOS into it but only when and if the case goes to them — what have you to lose — the FOS will support this I believe
    What the FOS did want to know was when an adviser was having a problem with a CMC not playing ball — to contact them asap and register it but this action they say will not cost you

  8. Dennis Burling ACII APFS, Chartered Financial Plan 5th October 2011 at 2:22 pm

    Bring it on !!

    Its about time that this was put forward more forcefully, its all too easy for a claims chasing business to send off a raft of complaints for lots of policies just on the off chance that one may get a result on a no win no fee basis. Sometimes the claimant also knows nothing of the potential damage they are doing to a professional adviser who would had acted in good faith at the time, especially in cases that have little merit.

    Often when a claimant finds out what the ramifications for the adviser are under such circumstances, they often don’t pursue things further, by which time the damage has already been done.

    If an initial fee was levied to start off this would make them take things much more seriously and perhaps consult their adviser first before going ahead.

    I do appreciate the cost implications for hard up clients but whatever happened to the olld Let the buyer beware and uptmost good faith principles.
    If nothing is done this is just an opportunity for anyone to claim for virtually anything, just by saying that they didn’t understand it at the time, even despite signing to say they did in some cases !
    The nanny state and regulation has gone too far already and needs to be pulled back to reality again as otherwise there won’t be any advisers left to regulate !

  9. The MOJ and FOS must act against CMCs – there is absolutely no excuse or reason why these companies (cowboy clampers of the financial services industry) should not be outlawed !

  10. I’ll raise my hand for that, ops sorry not PC now to raise your hand so I’ll just stick my thumb up !!

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