Are FOS on the right course?

Different facets of the financial services sector have often taken differing views about where the funding burden should fall. But there is a growing consensus that FOS must now prioritise efficiency and reform. 

At the Credit Services Association we represent debt purchasers and collections agencies who make up only a small proportion of overall complaints made to the Financial Ombudsman Service. Our member firms have a complaint ‘uphold’ rate of less than a third – which compares favourably with other sectors. Nevertheless, there is always room for improvement in customer service and tackling issues that drive customers to complain to FOS.

FOS have asked for views on future trends in likely complaints – which is welcome. We know that many complaints are often generated by external factors including media coverage or activities of third parties, such as the claims management companies (CMCs). But there are other issues on the horizon worth considering too.

The Financial Conduct Authority’s proposal for a ‘consumer duty’ may generate an increase in complaints to FOS although not until the new framework comes into effect. It is easy to speculate how some emerging trends, such as the increasing shift to online interactions, could result in complaints if not handled well. Perhaps surprisingly, even the introduction of new regulations such as the debt respite ‘breathing space’ could result in complaints if its unintended consequences unwittingly trip up those referred inadvisably.

We should expect that as government pandemic support subsides, the level of financial difficulty and vulnerability may rise, though the extent of this is far from clear. Predictions of significant increases in aggregate indebtedness when the pandemic began didn’t actually materialise. In any case, a greater volume of collections activity should not necessarily mean higher than normal levels of complaints. It is more likely that new phenomena in the post-pandemic era could drive a change in the nature of complaints. For instance, atypical caring responsibilities or more flexible working may alter ability to work levels. SMEs experiencing difficulties repaying the Government’s ‘bounce back loans’ may grow as an issue. Separately the inflationary pressures now being experienced, especially from rising energy costs, could add to precarious financial circumstances. Firms will need to take changing circumstances into account, a long-standing feature of the collections sector. 

It is to be welcomed that FOS are taking some steps to generate efficiencies, including rebalancing its reserves and the costs of its property portfolio. But the extent of the levy increase – an additional £10million - does not seem justifiable given that the PPI ‘spike’ has now passed and the amount of work is declining significantly. It is true that FOS must work hard to improve timeliness and consistency, but those cannot be delivered by throwing more money at the issue alone.

Moreover, the FOS proposal to slash the number of cases that do not attract their £750 case fee from 25 to just three per firm will have a big effect, particularly on smaller market participants. Many people outside our sector are astonished to learn that the case fee is to be paid by a firm regardless of whether that complaint is upheld. So, when typically two-thirds of complaints are not upheld, this proposal in some cases will double the cost to firms simply for the privilege of being found to have done nothing wrong!

There is a fundamental dysfunction in a model which allows claims management companies to arguably entice and then weaponise complaints, leaving firms caught in the dilemma between incurring a £750 case fee and sizeable administrative costs in order to be found blameless, or instead settling and paying off what may well be a fallacious complaint at a fractionally lower level. This is unfair and not in the long-term interests of customers, especially as the burden of costs often works its way back to the end consumer. 

It would be far preferable if FOS grasped the reforms needed to design a fairer and more effective complaints system, rather than opting for budget increases that put off the day for real change. Solutions that are genuinely fair and which drive the right behaviours will deliver longer term stability for FOS and ensure there is ready access to a complaint resolution service which is free for consumers.

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