CSA member voices heard as FOS looks set to charge CMCs claims management companies

The Credit Services Association (CSA) has responded to the Financial Ombudsman Service’s (FOS) annual plan and budget consultation, backing the proposals to introduce a case fee for claims management companies (CMCs) and other organisations whose business mode entails acting on behalf of complainants – deemed ‘professional representatives’ in the FOS paper. The imbalance between firms and CMCs within the FOS infrastructure is an issue we have frequently pressed the FOS to tackle in recent years, both in our regular trade body discussions and in direct conversation with the chief ombudsman, so it is a great reassurance to see our voices have been heard and steps are being taken in this direction.

FOS has historically charged firms that receive a complaint a case fee on the basis that consumers should not be charged for seeking independent adjudication and firms that are driving complaint volumes should foot the bill. However, many professional representatives have exploited this approach, raising complaints on behalf of consumers in return for a piece of any compensation but failing to apply any meaningful scrutiny to the complaint brought to them. And that approach is no surprise when there has been no incentive to decline a complaint that could generate some profit. This leaves financial services firms taking the financial burden of all complaints while professional representatives benefit financially at no cost to themselves. It can also leave individual complainants with false hope while the FOS is overburdened with complaints of little merit.

Proposals to introduce a case fee for professional representatives are a significant step toward redressing the balance and ensuring that professional representatives are financially invested before raising a complaint with the FOS, something we’ve encouraged the FOS to explore on several occasions.

We have initially backed the introduction of a ‘moderate’ fee for these organisations, albeit a little more moderate (£200-£300) than has been proposed in the FOS consultation paper. We think the FOS should, however, reserve the option to charge the ‘high’ fee either across the board if the moderate fee fails to result in meaningful improvement in practices or in individual circumstances if there are outliers that submit poor quality complaints.

There are some concerns about the case fee being passed on to consumers. While CMCs fall within FCA jurisdiction and passing on a case fee can be prohibited through regulatory change, many other professional representatives may fall outside the regulatory perimeter, so consideration will need to be given to how those professional representatives are discouraged or prohibited from unfairly passing on case fees to consumers. The FOS and FCA will also need to clearly set out the scope of the term ‘professional representative’ to ensure, for example, charities acting on behalf of a consumer are not inappropriately charged.

We look forward to seeing where the FOS lands on this and trust that it will deliver an approach that fairly balances the funding of its service between firms and professional representatives.