FOS: for free or not for free?
Should consumers pay a fee to bring a complaint to FOS? FOS handled 2.3m initial enquiries and complaints from consumers in 2013/2014.
Around one in five of those initial consumer enquiries turned into a formal dispute, so FOS reviewed over half a million new cases last year - a record number. Reduced but broadly similar figures are expected in 2014/2015.
However, in 2014/2015, FOS plans to do the same work for 20% less money. FOS has agreed to cut its budget by £60m. The case fee payable by firms is frozen at £550. FOS also agreed to freeze the overall levy at £23.3m (but has no plans to pass the budget cut on to the wider financial community by, say, a refund of levy payments).
In June the Ministry of Justice reported a big fall in complaints to Employment Tribunals, with officials blaming the fall on the fees which were introduced last year. From July 2013, Tribunal claimants must pay fees of up to £250 to start their employment claim, with further fees becoming payable as their case progresses. The figures are shocking (whichever side of the fence you sit on in the 'access to justice' debate) with a 59% fall in the number of Employment Tribunal cases, and the introduction of the fees in question is currently the subject of a judicial review.
So why does this make me wonder whether consumers should pay a fee to bring a complaint to FOS? The Employment Tribunal may have got the level of the fee wrong, but firms will be familiar with clients asking for a copy of their personal data as held by the firm. In return for the client paying a fee of up to £10, the firm must respond to the client's data subject access request by providing the relevant data.
Yes, £250 would be too much - but £10? If every consumer who brought a formal complaint to FOS had to pay an administrative fee of £10, then FOS would receive an extra £5m in funding. Setting the fee at an affordable level means that there could be no suggestion that consumers were being denied access to justice, and so FOS would avoid the Employment Tribunal's current troubles. If a consumer has to put their money where their mouth is, then this may make them think twice before they bring complaints which are 'frivolous or vexatious'. This should reduce the number of complaints to FOS, in turn freeing up FOS resource to clear the PPI backlog and to deal more quickly with the remaining legitimate complaints.
Speaking of deterrents, what about a new levy, payable by CMCs? We are all only too familiar with the CMCs' ambulance chasing in the PPI misselling scandal, and the massive impact this complaint boom has had on the FOS' ability to progress complaints swiftly. FOS is intended to be somewhere consumers can have their complaints resolved quickly and for free - but CMCs charge consumers to use a free service. (Most CMCs require consumers to pay to the CMC a percentage of any redress the consumer is awarded.) If CMCs are to benefit from the system in this way, then surely there is an argument that they should also pay into the system?
If not a levy, then how about a case fee, similar to the fee payable by firms, payable by CMCs and which the CMC is not permitted to pass on to the consumer? The Association of Professional Financial Advisers (APFA) is already running a campaign lobbying for the introduction of a CMC case fee (which we have previously commented on) and so we're not the only ones to have this idea.
We're not talking about charging CMCs for bringing a losing complaint, which seems to have been ruled out earlier this year in the February 2014 Guide to Complaints Handling involving CMCs Instead, CMCs should pay an upfront charge, either by way of a case fee or levy. This may go some way to controlling the "development of a claims industry in this field" which Arden LJ was concerned about in Clark v In Focus.
We say the time has come to reassess the fees charged to consumers and their representatives. A £10 fee for each complaint might lead to an extra £5m in funding for FOS. A case fee for CMCs could lead to an equally significant level of funding and may act as a much needed check on this burgeoning industry. Might we even see a levy reduction or refund in the future?