Regulatory
Fair Play at Stake: The Call to Rethink FOS's £250 Fee Proposal
Sentinel Legal strongly opposes the FOS's proposed £250 fee for each case submitted by Claims Management Companies — arguing it will create a financial barrier to justice and disproportionately harm vulnerable consumers.
The FOS Fee Proposal: What's Being Proposed?
The Financial Ombudsman Service (FOS) has recently proposed changes regarding the charging of fees to Claims Management Companies (CMCs) and other professional representatives.
Summary of the Proposal:
- A £250 fee for each case submitted by CMCs and professional representatives.
- The fee is reduced to £75 if the case is resolved in favour of the complainant.
- The first three cases per financial year are exempt from the fee.
- Charities, family members, and advisory organisations are exempt.
Sentinel Legal's Opposition: Key Points
1. Restricting Access to Justice
The introduction of fees will create a financial barrier for consumers seeking redress through professional representation. Many consumers rely on the expertise of law firms and CMCs to navigate the complexities of financial disputes, particularly in motor finance mis-selling cases.
2. Economic Non-Viability
The proposed fees are economically non-viable for law firms and CMCs that operate on thin margins. The costs involved in preparing and submitting cases are already substantial.
3. Imbalance of Power
The proposals favour financial firms by reducing the volume of claims they need to address. This creates an imbalance of power where consumers, already at a disadvantage, will find it even harder to challenge large financial institutions. The principle of "polluter pays" is undermined as the burden shifts to consumers.
4. Complex and Obstructive Processes
Financial firms often employ obstructive tactics, such as providing contradictory information or refusing to settle valid claims. Professional representatives play a crucial role in overcoming these barriers.
5. Impact on Vulnerable Consumers
Vulnerable consumers — those with poor health, low resilience, or low financial literacy — rely heavily on professional assistance to seek redress. Fees would disproportionately affect these consumers.
The Impact on Motor Finance Claims
During the PPI scandal, 32.4 million complaints were submitted, resulting in £38 billion in redress paid out. Annually, 10% of these complaints were escalated to the FOS.
- Using 2020 motor finance data as an example:
- 75% of 1,885,000 contracts = 1,413,750 viable contracts
- 10% escalated to FOS = 141,375 complaints annually
- At £250 per case = **£35,343,750 annual cost to law firms and CMCs**
Even if all complaints were upheld, at the reduced £75 fee: £10,603,125 per year.
Critical Questions for the FOS
If the £250 fee is implemented, how will the FOS ensure they adhere to their strategic goals of:
1. Being Accessible and Easy to Use — the fee arguably makes the service less accessible. How will the FOS maintain accessibility for vulnerable consumers? 2. Providing Value for Money — FOS complaints can currently take years to reach a decision. What will complainants receive in return for the £250 fee? 3. Professional Expertise — what access to professional expertise will professional firms receive in return for the fee?
Conclusion
Sentinel Legal urges the FOS to reconsider its proposal. The proposed changes will have a detrimental impact on consumers' access to justice, create an imbalance of power in favour of financial firms, and undermine the principle of fair dispute resolution. We advocate for a system that ensures financial firms — rather than consumers or their representatives — bear the costs of resolving disputes arising from their practices.