Financial Ombudsman Service to impose fees for case referrals

The Financial Ombudsman Service (FOS) are to impose charges on professionals making case referrals.

Law firms and claims management companies (CMCs) will be able to submit 10 cases to the ombudsman per year but, from April, case referrals will carry a charge of £250. Referring firms will receive £175 back as a credit if the complaint is upheld, which reduces the representative’s outlay to £75.

Referrals to the service will remain free of charge when made directly, or through charities, family members or voluntary organisations.

The FOS brought in the charge with the aim of making funding arrangements fairer, resolving disputes quickly and enhance their running costs, which had escalated due to an increase in the number of claims. But the introduction of the referral fees has led to the resignation of the service’s CEO, Abby Thomas. Following a number of reported disputes with fellow directors, she departed the FOS after making clear her reluctance to start charging CMCs for referrals, or charge only around a tenth of the £250 set fee.

Finance providers and lenders currently have to pay a £650 fee for complaints against them that progress to an FOS investigation. Financial services industry leaders had argued that law firms and CMCs should pay the same £650 fee they faced when requesting an FOS adjudication. The new rules will mean that, in the event of a CMC-referred case not being held – or being withdrawn – the £650 fee for the finance provider will be reduced to £475.

The ombudsman aims to ensure that complaints submitted for their consideration are properly founded, are thoroughly evidenced and offer a substantial chance of being upheld. It’s believed that the charge will reduce the number of unsubstantiated grievances submitted with little to no merit.

Nearly half of the complaints brought to the FOS for adjudication between April and December 2024 were submitted by law firms or CMCs. Little more than a quarter of these were adjudicated in favour of the complainant. Claims made independently (and without cost) by consumers had a 38% success rate.

In conjunction with the Financial Conduct Authority, the service ran an open consultation on how best to overhaul and modernise the current system for redress claims. Among the issues faced are sudden or significant increases in the volume of claims, which can cause problems for firms looking to investigate respond promptly, meaning any redress due to customers may be severely delayed.

The findings of the FCA’s Call for Input, which closed on 30^th January, are to be published in the first half of this year.

James Dipple-Johnstone, currently interim chief ombudsman at the FOS following Thomas’ departure, said: “We’ve seen more cases brought by professional representatives, but fewer of these cases leading to a better outcome for their clients.

“Currently there is little commercial incentive for representatives to ensure the complaints they bring are well-founded or have merit. As a not-for-profit service, we expend our finite resources handling thousands of withdrawn or abandoned cases, which can lead to longer wait times for other customers.

“The charges we are introducing from April will bring better balance to our fee model, helping us to resolve disputes quickly and ensuring a wider contribution towards our running costs.

“Professional representatives can play an important role in resolving financial disputes by providing high-quality, good-value services to those people who make an informed choice to employ them.”

Barings Law Dispute Resolution Manager Natasha Murphy said: “The new fees may mean that professional representatives, such as law firms, won’t want to progress valid claims, because they are facing a financial burden – even if the complaint is upheld by the service.

“Typically, when a case proceeds to court, the unsuccessful party pays their own costs and those of the opposition. However, under the new arrangement, the Financial Ombudsman Service will get paid twice – by the lender, and by the law firm or claims management company.

“The fees have been brought in to stop professional representatives from submitting unmerited claims that have little evidence or chance of success, if the fees were imposed upon the unsuccessful party only, this should make for a fairer system.”