FOS aims to remain cost-free for consumers – by charging their CMCs

In what is perhaps a sign that the cost-of-living crisis is impacting more than just you and I, the Financial Ombudsman Service (FOS) has announced plans to begin charging case management companies (CMCs) a fee for bringing a complaint – the aim being to balance the needs of consumers, with financial sustainability. What impact is this likely to have on consumers and those facing complaints at FOS?

The FOS has always been (and remains today) a free service for consumers, but what happens when those instructed to help consumers are charged a fee? Under plans announced late last year, FOS will be permitted to charge a fee to CMCs and other relevant legal professionals (a Professional Representative) who represent consumers before FOS. Nothing is set in stone, and feedback is sought on the proposals, but it's perhaps a sign of a wider question being asked by FOS – are CMCs really necessary?

New plans

In its 2024/25 Plan and Budget Consultation Paper FOS confirmed that consideration is being given to charging Professional Representatives and CMCs a fee each time a complaint is made, with various fee options being considered. They note that, over the past two years, 20% of complaints have been brought by a Professional Representative and that such representatives can obtain an economic benefit from bringing a complaint without having to pay a fee. They also note that using a Professional Representative can reduce the redress actually paid to a consumer by 30% or more because of the fee charged.

Whilst historically FOS has been seen as a 'free' service, this has only ever been true for the consumer – FOS is funded through an annual levy on FCA regulated firms, as well as a case fee of £750 payable by firms when more than three complaints are made in any year (£750 being charged for the fourth and any future complaints). 

It's proposed that Professional Representatives would also not be charged an initial case fee for the first three cases referred. I could write a blog alone on the fairness of the FOS case fee (the fee is charged regardless of the outcome and FOS' justification is it's cheaper than if the claim went down the civil route). I digress, but the point is that charging fees is nothing new - it's just new for those pursuing a complaint.

Impact going forward

The proposals are currently subject to a consultation and it's possible that the fee suggestion will not go ahead. Indeed, the Association of Consumer Support Organisations (ASCO) has called out the move as being a "stealth tax" on consumers. This is perhaps an exaggeration given there is no requirement to instruct a Professional Representative, as a consumer can complain direct to the FCA regulated professional (and refer the complaint to FOS) with no fee. 

If the fee proposals on CMCs do go ahead, the question is whether we'll see a reduction in the number of complaints being. More often than not (certainly in our experience) CMCs will refer complaints to FOS regardless of the merits – what do they have to lose? They have no financial exposure (save for the costs they incur preparing the FOS referral, which are likely to be minimal) and so there is no harm in them referring each and every complaint to FOS, regardless of the merit. Perhaps the proposed fees will impact this model and make CMCs in particular think twice before referring a complaint to FOS. 

There is of course a concern that any fee charged will be passed on to the consumer. Whilst this concern is understandable, it raises two points.

• First, whilst FOS was meant to be a free service, it was also meant to be a quick and efficient service – and anyone who has recently been involved with FOS might take the view that there is nothing quick or efficient about the process. Perhaps the introduction of fees will speed up the process of complaints before FOS by reducing the number of complaints and providing funds to recruit more staff. A more efficient process benefits both consumers and FCA regulated businesses. 
• Secondly, the FOS currently has no jurisdiction to award costs when a complaint is rejected (and even FOS acknowledges that costs being awarded isn't common - even when a complaint is upheld). As such, it's likely (unless CMCs have suddenly had a charitable change of heart) that they will be taking a share of any redress paid. The point being that consumers are already facing costs for pursuing a claim to FOS when they instruct a Professional Representative  

Responses are invited before 31 March 2024. We'll provide an update once a decision is made – and the impact this may have. Will we see a decrease in the number of complaints made to FOS, or is this the beginning of the end for CMCs?