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The Financial Services Ombudsman is considering plans to charge claims management companies up to £650 per case to weed out spurious applications.
According to a consultation note published this week by the body and the UK Treasury, 20 per cent of cases raised with the FOS are brought by claims management companies. Of these, more than half are not upheld.
These companies are raising “seemingly templated and poorly evidenced complaints . . . which impact the FOS’s ability to help other customers as quickly as it would appreciate”, the consultation document said.
The average time to overcome a case with the FOS in the first half of 2023-24 is 3.2 months, down from 4.8 months in 2022-23.
Claims management companies proliferated in the wake of the mis-selling of payment protection insurance (PPI), which caused banks to pay out more than £38bn. However they have been accused of encouraging a “compensation culture”, running misleading advertising and failing to deal with regulators in a transparent way.
In 2016, the Financial Conduct Authority gained oversight over 1,700 claims management companies.
Potential charges could come in three tiers, depending on the complexity of the case. Companies may be charged £50-£100 per case to cover the initial administration costs, £101-£200 if the case requires additional casework time, or £650 on closure of the case to cover additional costs related to resolving the complaint.
To ensure fees are charged only to “commercial entities working at scale”, the FOS proposed allowing entities three cases free of charge, which it said should protect law firms from charges.
According to a separate note published by the UK Treasury, claims management companies have been accused of “weaponising” the threat of fees the FOS charges to firms found to have caused losses or damage to consumers. Firms say they are settling claims before they formally become part of the FOS process, where the level of redress being sought is less than the amount the firm would have to pay if the case were upheld.
The FOS consultation will consider the level of fees, the potential impact on complaint volumes and the time needed for businesses to get ready for the changes. It stressed that consumers should be able to access its services free of charge.
According to Simon Evans, chief executive of the Consumer Redress Association, a trade body for claims management companies, the industry has already been “decimated” by a regulator-imposed deadline of 2019 for PPI claims and the introduction of a cap on fees that claims management companies may charge customers. If new FOS fees are introduced, he says, companies may limit their services or go out of business.
He estimates that fewer than 10 per cent of claims management companies in operation before the FCA gained oversight are still running.
“[Claims management companies] will see more cases as being not commercially viable and will exit the market,” he said. “Consumers should not be losing areas of access to justice because of the perceived poor behaviour of some of the market.”
