Financial Services and Markets Act 2000 (Ombudsman Scheme) (Fees) Regulations 2024
Debate between Baroness Blake of Leeds and Baroness Ritchie of Downpatrick
Baroness Blake of Leeds (Lab)
My Lords, these regulations are made under the powers in the Financial Services and Markets Act 2023. Noble Lords may be aware that the Secondary Legislation Scrutiny Committee raised this SI as an instrument of interest in its second report, published on 5 September. This statutory instrument will enable the Financial Ombudsman Service —also known as the FOS—to charge case fees to claims management companies and relevant legal professionals when they bring cases to it on behalf of complainants.
The Financial Ombudsman Service provides a proportionate, prompt and informal service to resolve disputes between consumers and financial services firms. It is designed as an alternative to resolving cases through the courts, which can be expensive for both firms and consumers and is a lengthy process that can delay redress. The Financial Ombudsman Service is cost-free to consumers and funded by a combination of an annual levy on firms and case fees charged to firms that are subject to complaints.
The FOS is designed to be an accessible service, and indeed the majority of consumers raise complaints directly with it. However, some consumers choose to use claims management companies or law firms to bring claims to the Financial Ombudsman Service on their behalf. Collectively, these are known as professional representatives. These professional representatives normally take a proportion of any compensation awarded as payment for their services. This can reduce a consumer’s redress by as much as 30%.
Currently, these professional representatives cannot be charged for bringing cases to the FOS, despite the fact that they gain an economic benefit from doing so. Although many of these professional representatives act responsibly, there is evidence that some firms are exploiting the cost-free service provided by the FOS to consumers by flooding it with templated and poorly evidenced complaints. This behaviour negatively impacts the ability of the FOS to resolve other consumer complaints promptly. It also has a significant cost to industry, as firms are required to pay a case fee of £650, regardless of whether a complaint is upheld against them.
The Government have also noted concerns that firms experiencing this treatment may feel pressured into settling claims early by offering an amount below the £650 case fee in order to reduce the overall cost to the firm, even where they feel the claim is without merit.
To address these exploitative practices, this instrument will enable the FOS to charge a case fee to professional representatives for bringing complaints on behalf of claimants. This will provide a financial incentive for those professional representatives to consider carefully the merits of any cases they are bringing on behalf of complainants and to avoid flooding the Financial Ombudsman Service with templated complaints. Charities bringing complaints on behalf of consumers are not included in this instrument and therefore will not be charged by the FOS and, of course, the FOS will remain completely free for consumers to access directly.
As it is already for financial services firms subject to complaints, the Financial Ombudsman Service will be responsible for determining exactly who is charged and the level of any fees. The FOS has consulted on its proposed detailed approach to charging fees to professional representatives in anticipation of this instrument. This proposed a fee of £250 to professional representatives for each case they bring. When the FOS finds in favour of the claimant represented by the professional representative, it has proposed that the fee will be reduced to just £75. In this way, it has sought to disincentivise bad behaviour, while minimising the impact of the changes on professional representatives bringing cases with merit. If this SI is approved, the Financial Ombudsman Service will confirm its final plans, having considered the responses to its consultation.
The approach taken through this SI ensures that the FOS will remain cost-free to consumers while ensuring that the poor behaviour of some professional representatives does not undermine the ability of the FOS to deal with consumer complaints promptly. I hope noble Lords will join me in supporting these regulations, I commend them to the Committee, and I beg to move.
Baroness Ritchie of Downpatrick (Lab)
My Lords, I take this opportunity to thank my noble friend the Minister for explaining clearly what this statutory instrument is about. I declare an interest as a member of the Secondary Legislation Scrutiny Committee. I have some questions, about which I have already alerted the Minister. I actually alerted my noble friend Lord Livermore, thinking he would be answering on this, but I think he has passed them on.
There is a concern that, while it is laudable that no charges will be involved for claimants who make direct contact with the Financial Ombudsman Service, which has proven to be an excellent service for people who have particular issues in the financial world, notwithstanding that, some people like the services of professional representatives. A recent survey found that 43% of people were likely to be vulnerable prior to financial scams—we are all beset by them—and 85% became vulnerable in the aftermath as the reality of the situation hits them and their mental health may deteriorate. Will the Minister outline the real reason for eradicating, in many instances, the middle person, the professional representative? That would be very useful.
As we know, all professional representatives are regulated either by the Financial Conduct Authority or the SRA. Claims management companies are explicitly forbidden by regulations from bringing cases that do not have “a good arguable case”, or that are “frivolous or vexatious”. Therefore, firms are required to learn from the FOS approach to ensure that they do not continue to submit cases with an unrealistic chance of success. So why is the FOS not pushing regulators to enforce this more? The FOS would be better highlighting this to the regulators, which have the power to take heavy action against these firms. The ombudsman has the power to reject poor-quality submissions. Why is it not using this to a greater extent against the 10 firms that are particularly clogging up the system?
Finally, could my noble friend the Minister advise, or come back by way of writing, on whether the Government intend to ameliorate the situation? Sometimes, people like the services of professional agents, notwithstanding their level of financial security, and would appreciate that, and they do not think that it is fair that the cost that has been levied on the professional claims person should be passed on to them.
The Earl of Courtown (Con)
My Lords, I welcome these regulations and appreciate the very full description of them that the Minister gave. As she said, they enable the Financial Ombudsman Service to amend its rules to charge case fees to claims management companies and legal professionals on behalf of complainants when a customer launches a complaint against a financial services firm.
On these Benches, we believe in the importance of fair and justified financial regulation and the ability for customers to issue a complaint against financial services firms when necessary. We recognise the benefit of this legislation, which seeks to address the economic benefit gained by intermediaries from bringing a case and the large volumes of poorly evidenced complaints submitted to the FOS.
We welcome the Government’s continuation of our work in which we introduced the Financial Services and Markets Act 2023, which enabled the Government to add to the list of persons to whom the FOS can charge fees. I would like answers to a couple of questions, but the Minister can write to me if need be. What measures are His Majesty’s Government taking to ensure that genuine and well-evidenced complaints continue to be submitted to, and heard by, the Financial Ombudsman Service? Can the Government confirm that this legislation will not result in increases in fees paid by consumers who have submitted a complaint?
I was interested in the points raised by the noble Baroness, Lady Ritchie, and look forward to hearing the Minister’s responses to them. As I said, we support these regulations, and I look forward to the response from the Minister.