FCA, FOS acknowledge failures in consumer redress approach

The Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS) have pledged to work more closely together when handling consumer complaints and potential compensation schemes, acknowledging that the existing processes are inadequate for situations where there are “mass redress events” – large numbers of complaints about the same issue – such as the current spate of auto finance mis-selling claims.

The move follows the Chancellor’s Mansion House speech in which Rachel Reeves called for regulators to implement a more predictable, stable and streamlined regulatory regime with greater certainty about outcomes, as part of efforts to encourage competitiveness and growth in the UK.

The FCA also highlighted concerns about the impact of the introduction of Consumer Duty on mass redress events, noting that these require a consistent interpretation of regulatory requirements, and warning that Consumer Duty “being outcomes‑focused potentially risks creating uncertainty for firms or inconsistent outcomes for consumers.”

Consultation

FOS said its Dispute Resolution (DISP) rules were last reviewed ten years ago, noting the finance services landscape has changed markedly in recent years, and conceded that “while the current system works well for individual complaints about specific issues, sudden and significant increases in complaints can cause firms to struggle to effectively respond.”

In response, the FCA and FOS have issues a joint Call for Input on modernising the consumer redress scheme, asking stakeholders: .

• How the current redress framework could be modernised.
• The problems that mass redress events and the redress scheme in general cause firms, consumers and their representatives.
• What changes to the redress framework would enable FCA and FOS to better identify and manage mass redress events to ensure better outcomes for consumers, firms and the market.
• What changes could be made to how the FCA and FOS work together to ensure their views on regulatory requirements are consistent.

“By further strengthening our work with the FCA and industry, we can identify and address these issues more promptly to ensure better outcomes for all,” he added.

Mass redress events

The Call for Input makes clear that a mass redress event could be triggered by differing views of how the FCA rules apply, and a misalignment between the FCA and FOS, which is the case currently with motor finance complaints.

For its part, FOS highlighted the increasing number of complaints being brought by professional representatives (PRs) or claims management companies (CMCs), which it suggested lay behind the spike in redress claims. The ombudsman pointed out that when complaints are upheld, a significant proportion of any redress goes to these third parties, and said the service was also receiving large numbers of poorly articulated complaints which increases costs.

As a result, FOS is to go ahead with plans to introduce a £250 fee for individual PR‑represented cases, reduced to £75 if the outcome is in the consumer’s favour.

The Call for Input also acknowledges that the current approach to complaints handling may be an inefficient way to deal with potential large‑scale consumer redress issues that involve many similar cases compared to more systematic approaches, for example voluntary or compulsory redress schemes

Cases may be referred to FOS because firms have not been able to respond. In these cases, the FOS may not have the firm’s file or the information needed to assess the complaint. This can result in further delays for consumers. There is then no formal mechanism for cases to be passed back to firms for review even if one of the limited dismissal grounds in DISP applies.

One option on the table is to create a definition of when a “mass redress” occurs, with a view to implementing clearer and earlier identification of events where significant issues may be emerging and may need to be carefully managed before they become systemic.

The FCA and FOS are also  proposing that consumer and industry stakeholders have more direct channels of communication with the FCA, FOS and other regulatory partners involved in the Wider Implications Framework (WIF). This will make it easier and quicker for consumer and industry stakeholders to flag matters with potentially wider implications for a market.

The deadline for comments on the Call for Input is 30 January 2025 and the FCA has committed to summarise the responses and publish next steps in the first half of 2025.

“At the Asset Finance Connect November conference we will be examining the impact on lenders, brokers and the wider industry, and are delighted to have both Stephen Haddrill, FLA director general, and Jim Higginbotham, CEO of NACFB, on the platform to discuss how the industry moves forward to minimise disruption.”

For more details and to book your place visit the AFC conference website or email Louise Clavey at louiseclavey@assetfinanceconnect.com