Calls for FOS to levy fees on CMCs

The Financial Ombudsman Service’s (FOS) second consultation on introducing a fee for Claims Management Companies (CMCs) who bring cases on behalf of consumers closed on 4th July. This followed an initial consultation earlier this year which found two-thirds of respondents favoured charging such a levy, with some trade associations calling for fees at the higher end of the range proposed.

The PIMFA, the trade association for wealth management, investment services and the financial advice and planning industry, has described the move as an opportunity to “level the playing field between CMCs and financial services providers.”

FOS is proposing the introduction of a £250 charge for each case submitted by a CMC, reduced to £75 if the case outcome is in favour of the consumer.

If FOS does not uphold the complaint, the £250 fee collected from CMCs will be netted off against the case fee charged to business against whom the complaint was originally raised.

In its response to the latest FOS Consultation ‘Charging Claims Management Companies and other Professional Representatives’, PIMFA agreed that such a levy would act at as a disincentive to bring forward targeted block cases against firms that have little chance of success. However, it argued in favour of a higher charge, which would result in firms and CMCs sharing the burden of case fees.

Assuming a case fee of £900 as outlined in the consultation proposals (£250 case fee for the CMC and £650 for the respondent firm), PIMFA suggests a 50-50 split between both parties, meaning that respondent firms would be required to pay £450 as would CMCs and professional representatives. It says such a move would address what it calls “the economic imbalance which currently exists between CMCs and the financial services sector”.

In its argument, PIMFA says it is unconvinced that raising case fees for CMCs would result in consumer detriment, given that there is little evidence that the use of a CMC results in a demonstrably better outcome for consumers.

FOS figures support this view, with the ombudsman stating: “Over the last two years, 20% of cases referred to the FOS have been brought by commercial CMCs and other professional representatives who are taking a significant proportion of the awards otherwise due to their clients. Of these cases, fewer than 25% result in a different outcome for the complainant than they have already been offered by the respondent firm. In addition, despite profiting from it, the current funding model means CMCs and other professional representatives do not contribute to our costs.” 

Simon Harrington, Head of Public Affairs at PIMFA, commented: “In accepting the principle that the FOS is and should always remain free to access for consumers, we find ourselves questioning why it is that CMCs should be able to insert themselves into a process for their economic benefit where there is little evidence to suggest that their presence is in any way contributory towards consumers receiving a good outcome.

“Whilst we are pleased to see that the FOS has accepted the principle that CMCs and professional representatives should be required to contribute towards case fees which they bring forward, we strongly believe that the FOS should review its proposals in order to set out a more equitable settlement between CMCs and respondent firms.”

CMCs have played their part in the steep rise in claims made to FOS for investigation in relation to undisclosed commission on car finance arrangements, which now total over 20,000.

Given the significance of this topic to the auto finance sector, Simon Evans, managing director of Consumer Redress Association (CRA), which is the CMC trade body, was a speaker at the AFC summer conference.  Learn more about the role of CMCs in the AFC conference review here.