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