People entering the building.

The 22 more free FOS cases of Christmas

06 January 2012

On the twelfth day of Christmas, our Ombudsman service gave to us a proposal that would see smaller and medium sized firms given many more free complaints before a case fee applies.

It may not rhyme but it is good news for all but the largest firms at the start of the year.

In a consultation issued today, the FOS announced its proposal to increase from April 2013 the number of free cases for smaller and medium sized users of the Ombudsman service from 3 to 25 such that only 1% of the 26,000 regulated businesses would pay any case fees at all.  The largest users (the top 10 or so financial groups that account for over 70% of the FOS caseload) would get a new group account arrangement which would measure more accurately the costs to the FOS of the work generated by each of these groups.

To the extent that smaller firms feel their few case fees subsidise the most complained about, large institutions, this will be welcomed by the majority (by number) in the industry.

The consultation does not address the risk that such a direct relationship between the big financial institutions' use of, and payment for, the FOS will create at least the perception of preferential treatment or, worse, control.  We will have to see the responses to the consultation.

The consultation paper discusses various alternative suggestions for the FOS case fee model, rejecting all apart from the proposal to increase the number of free cases:

  • FOS believes product-related case fees do not reflect the fact that even simple products can give rise to complex, entrenched disputes
  • Process-related case fees that 'kick in' at various stages would be seen as discouraging firms from progressing to the 'appeal' stage but might also discourage firms from simply referring cases to an Ombudsman as a matter of course. The FOS' concern to avoid the appearance of deterring referrals for a final decision by an Ombudsman is to be applauded here but was noticeably absent from the consultation on publishing final determinations
  • Outcome-related fees are dismissed because of concerns about incentivising the FOS to uphold complaints which would provide the FOS' critics with yet further ammunition
  • Charging claims management companies is ruled out as both impossible under current statute and unnecessary given the behavioural issues of claims managers can best be addressed by better regulation of that sector
  • Charging consumers a deposit might prevent frivolous or vexatious complaints (which already go uncharged to the respondent firm) but would clearly offend principles of access to justice for the most vulnerable and needy consumers.

The idea of increasing the number of free cases is simple and is likely to be broadly accepted. It is estimated that more than 60% of those firms currently paying case fees each year would no longer do so. The large institutions may also embrace the idea of a 'pay as you go' funding model which better reflects their actual usage of the Ombudsman service.

Let it not be said that all news from FOS is bad news for all regulated firms!