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The UK financial ombudsman announced on Friday it would start charging claims management companies for bringing cases only a day after its chief executive quit unexpectedly, having clashed with its board over the plans.
The Financial Ombudsman Service, which resolves consumer complaints against the financial services sector, said that from April it would charge claims management companies £250 for every case they bring beyond the first 10 each year. This would fall to £75 if a claim is successful.
The decision is designed to address concerns that “there is little commercial incentive for representatives to ensure the complaints they bring are well-founded or have merit”, the FOS said.
The change was welcomed in the City of London, where executives have often protested about the costs of “ambulance chasing” claims managers pursuing spurious cases.
Stephen Haddrill, director-general of the Finance and Leasing Association, said claims management companies “should not have a free ride, not least because they have driven a compensation culture that damages investor confidence in the UK and threatens growth”.
Only 26 per cent of cases brought by professional representatives succeeded, FOS said, compared with 38 per cent of those brought directly by consumers.
Consumers will still be able to refer complaints directly to the ombudsman for free. However, representatives of “no-win no-fee” legal groups have warned that the new charges would deter consumers from bringing genuine cases to the ombudsman.
“This is a premature decision by the FOS, which will only serve to increase customer detriment and unfairly reduce the number of complaints submitted,” said Matthew Maxwell Scott, executive director of the Association of Consumer Support Organisations.
The FOS announcement came only hours after it said Abby Thomas had stepped down as its chief executive, without explaining why she was leaving.
One person familiar with the matter said the ombudsman’s board was frustrated at her initial reluctance to start charging claims management companies.
The person said Thomas had initially argued against the plan to introduce the new fees and had then pushed for them to be set at a much lower level of £25 per case.
Thomas did not respond to a request for comment and the ombudsman declined to comment on whether there had been a boardroom rift over the introduction of fees.
Claims management companies, which pursue complaints for groups of consumers in return for a cut of any compensation, shot to prominence in recent decades thanks to the payment protection insurance mis-selling scandal. They helped to raise the total compensation paid out by banks to more than £50bn.
In recent months, the claims management industry has seized on controversy over alleged mis-selling of car finance to bring many thousands of claims on behalf of consumers, which HSBC analysts have forecast could end up costing banks as much as £44bn.
The FOS said it received 220,000 new complaints in the nine months to December, a 57 per cent increase from the previous year, partly due to a surge in complaints about motor finance. Claims management companies represented 47 per cent of last year’s complaints, up from an average of 20 per cent over the past three years, it said.
The ombudsman said 81 per cent of claims management companies would not pay the new fees as they bring fewer than 10 cases a year. It has budgeted to receive about £3mn a year from the extra fees.
“The evidence does not suggest that our new rules could seriously threaten the financial viability of the claims management organisations in scope, or deter genuine complaints for consumers,” it said.
The ombudsman is already in the spotlight after chancellor Rachel Reeves last year called for it and the Financial Conduct Authority to improve how they handled “historic market practice and mass redress events”, prompting the two regulators to launch a review of the complaints process.
The FCA said separately on Friday that claims management companies were behind almost half of the 19,766 financial adverts that had been removed or amended as a result of the watchdog’s actions. The total number of misleading and unfair financial promotions identified by the regulator almost doubled from the previous year.
The most common rule-breaking financial adverts by claims management companies were offering to pursue cases of housing disrepair or motor finance mis-selling for consumers.
