PARLIAMENTARY DEBATE
Draft Financial Services and Markets Act 2000 (Ombudsman Scheme) (Fees) Regulations 2024 - 25 November 2024 (Commons/General Committees)
Debate Detail
Contributions from Mark Garnier, are highlighted with a yellow border.
The Committee consisted of the following Members:
Chair(s) Carolyn Harris
Members† Beales, Danny (Uxbridge and South Ruislip) (Lab)
† Bool, Sarah (South Northamptonshire) (Con)
Cooper, Daisy (St Albans) (LD)
† Cox, Pam (Colchester) (Lab)
† Dickson, Jim (Dartford) (Lab)
† Foster, Mr Paul (South Ribble) (Lab)
† Francis, Daniel (Bexleyheath and Crayford) (Lab)
† Garnier, Mark (Wyre Forest) (Con)
Gibson, Sarah (Chippenham) (LD)
† Hack, Amanda (North West Leicestershire) (Lab)
† Poynton, Gregor (Livingston) (Lab)
† Reader, Mike (Northampton South) (Lab)
† Siddiq, Tulip (Economic Secretary to the Treasury)
† Stephenson, Blake (Mid Bedfordshire) (Con)
† Strathern, Alistair (Hitchin) (Lab)
† Wakeford, Christian (Bury South) (Lab)
† Wild, James (North West Norfolk) (Con)
ClerksKenneth Fox, Committee Clerk
† attended the Committee
First Delegated Legislation CommitteeMonday 25 November 2024
[Carolyn Harris in the Chair]
Chair(s) Carolyn Harris
Members† Beales, Danny (Uxbridge and South Ruislip) (Lab)
† Bool, Sarah (South Northamptonshire) (Con)
Cooper, Daisy (St Albans) (LD)
† Cox, Pam (Colchester) (Lab)
† Dickson, Jim (Dartford) (Lab)
† Foster, Mr Paul (South Ribble) (Lab)
† Francis, Daniel (Bexleyheath and Crayford) (Lab)
† Garnier, Mark (Wyre Forest) (Con)
Gibson, Sarah (Chippenham) (LD)
† Hack, Amanda (North West Leicestershire) (Lab)
† Poynton, Gregor (Livingston) (Lab)
† Reader, Mike (Northampton South) (Lab)
† Siddiq, Tulip (Economic Secretary to the Treasury)
† Stephenson, Blake (Mid Bedfordshire) (Con)
† Strathern, Alistair (Hitchin) (Lab)
† Wakeford, Christian (Bury South) (Lab)
† Wild, James (North West Norfolk) (Con)
ClerksKenneth Fox, Committee Clerk
† attended the Committee
First Delegated Legislation CommitteeMonday 25 November 2024
[Carolyn Harris in the Chair]
18:10:17
Tulip Siddiq
The Economic Secretary to the Treasury
I beg to move,
That the Committee has considered the draft Financial Services and Markets Act 2000 (Ombudsman Scheme) (Fees) Regulations 2024.
It is a pleasure to serve under your chairship, Mrs Harris. These regulations are made under powers in the Financial Services and Markets Act 2023. The Committee may be aware that the Secondary Legislation Scrutiny Committee raised this statutory instrument as an instrument of interest in its second report, which was published on 5 September.
This instrument will enable the Financial Ombudsman Service—the FOS, as it is commonly known—to charge case fees to claims management companies and relevant legal professionals when they bring cases to the FOS on behalf of complainants. The FOS enables consumers and financial services firms to resolve disputes without having to go through the courts, which can be expensive and time consuming for both parties. To deliver a service that is cost-free to consumers, the FOS is funded by a combination of case fees paid by firms subject to complaints and an annual levy on industry. The FOS is designed to be an accessible service that consumers can use for free, and the majority of consumers raise their complaints directly with the FOS.
However, some consumers choose to use claims management companies or legal professionals to bring claims to FOS on their behalf. Collectively, they are known as professional representatives. These professional representatives normally take a cut of any compensation awarded as payment for their services. This payment can be as much as 30% of the compensation awarded to a consumer. Currently, while these professional representatives can make money from bringing a case to the FOS, they cannot be charged for doing so.
Many of these professional representatives act responsibly, but there is evidence that some are taking advantage of the cost-free nature of the service that the FOS provides. Rather than properly assessing complaints and taking forward those with merit, these representatives submit large numbers of complaints that are poorly evidenced. This behaviour is negatively impacting the ability of the FOS to promptly resolve other consumer complaints. As firms are required to pay a case fee of £650 regardless of whether or not a complaint is upheld against them, this practice also has significant costs for industry.
Firms subject to large numbers of complaints from professional representatives can face significant bills in case fees, despite not being found to have committed any wrongdoing at all. The Government have also noted concerns that firms experiencing this treatment might feel pressured into settling claims early. In order to reduce the overall cost to a firm, they may simply offer to settle for an amount below the £650 case fee, even where they feel that the claim itself is without merit.
In order to address those exploitative practices, the regulations will enable the FOS to charge a case fee to professional representatives for bringing complaints on behalf of claimants. This will ensure that there is a financial incentive for those professional representatives to carefully consider the merits of any cases that they are bringing. There will now be a cost to flooding the Financial Conduct Authority with templated complaints that have a low chance of success. Charities bringing complaints on behalf of consumers are not included in the instrument and will therefore not be charged by the FOS. Of course, the FOS remains completely free for consumers to access directly. The FOS will be responsible for determining exactly who is charged and any level of fee. This is in line with how the system already works for financial services firms subject to complaints.
In anticipation of this instrument, the FOS consulted on its proposed detailed approach to charging fees to professional representatives. It published a statement on 15 November detailing the feedback it had received to the consultation, and its initial response. In that feedback statement, subject to Parliament approving this instrument, the FOS proposes that professional representatives will be charged a fee of £250 for each case they bring. When the FOS finds in favour of the claimant represented by the professional representative, the fee will be reduced to just £75. In addition, each professional representative will not be charged for the first 10 cases that they bring each year. In that way, we hope, the FOS has sought to disincentivise bad behaviour while ensuring minimal impact on those professional representatives bringing cases with merit.
If this instrument is approved, the FOS will confirm its final plans, having considered the responses to its consultation. The approach taken through this SI ensures that the FOS will remain cost-free to consumers while ensuring that the poor behaviour of some professional representatives does not undermine the ability of the FOS to deal with consumer complaints properly. I therefore commend the regulations to the House.
That the Committee has considered the draft Financial Services and Markets Act 2000 (Ombudsman Scheme) (Fees) Regulations 2024.
It is a pleasure to serve under your chairship, Mrs Harris. These regulations are made under powers in the Financial Services and Markets Act 2023. The Committee may be aware that the Secondary Legislation Scrutiny Committee raised this statutory instrument as an instrument of interest in its second report, which was published on 5 September.
This instrument will enable the Financial Ombudsman Service—the FOS, as it is commonly known—to charge case fees to claims management companies and relevant legal professionals when they bring cases to the FOS on behalf of complainants. The FOS enables consumers and financial services firms to resolve disputes without having to go through the courts, which can be expensive and time consuming for both parties. To deliver a service that is cost-free to consumers, the FOS is funded by a combination of case fees paid by firms subject to complaints and an annual levy on industry. The FOS is designed to be an accessible service that consumers can use for free, and the majority of consumers raise their complaints directly with the FOS.
However, some consumers choose to use claims management companies or legal professionals to bring claims to FOS on their behalf. Collectively, they are known as professional representatives. These professional representatives normally take a cut of any compensation awarded as payment for their services. This payment can be as much as 30% of the compensation awarded to a consumer. Currently, while these professional representatives can make money from bringing a case to the FOS, they cannot be charged for doing so.
Many of these professional representatives act responsibly, but there is evidence that some are taking advantage of the cost-free nature of the service that the FOS provides. Rather than properly assessing complaints and taking forward those with merit, these representatives submit large numbers of complaints that are poorly evidenced. This behaviour is negatively impacting the ability of the FOS to promptly resolve other consumer complaints. As firms are required to pay a case fee of £650 regardless of whether or not a complaint is upheld against them, this practice also has significant costs for industry.
Firms subject to large numbers of complaints from professional representatives can face significant bills in case fees, despite not being found to have committed any wrongdoing at all. The Government have also noted concerns that firms experiencing this treatment might feel pressured into settling claims early. In order to reduce the overall cost to a firm, they may simply offer to settle for an amount below the £650 case fee, even where they feel that the claim itself is without merit.
In order to address those exploitative practices, the regulations will enable the FOS to charge a case fee to professional representatives for bringing complaints on behalf of claimants. This will ensure that there is a financial incentive for those professional representatives to carefully consider the merits of any cases that they are bringing. There will now be a cost to flooding the Financial Conduct Authority with templated complaints that have a low chance of success. Charities bringing complaints on behalf of consumers are not included in the instrument and will therefore not be charged by the FOS. Of course, the FOS remains completely free for consumers to access directly. The FOS will be responsible for determining exactly who is charged and any level of fee. This is in line with how the system already works for financial services firms subject to complaints.
In anticipation of this instrument, the FOS consulted on its proposed detailed approach to charging fees to professional representatives. It published a statement on 15 November detailing the feedback it had received to the consultation, and its initial response. In that feedback statement, subject to Parliament approving this instrument, the FOS proposes that professional representatives will be charged a fee of £250 for each case they bring. When the FOS finds in favour of the claimant represented by the professional representative, the fee will be reduced to just £75. In addition, each professional representative will not be charged for the first 10 cases that they bring each year. In that way, we hope, the FOS has sought to disincentivise bad behaviour while ensuring minimal impact on those professional representatives bringing cases with merit.
If this instrument is approved, the FOS will confirm its final plans, having considered the responses to its consultation. The approach taken through this SI ensures that the FOS will remain cost-free to consumers while ensuring that the poor behaviour of some professional representatives does not undermine the ability of the FOS to deal with consumer complaints properly. I therefore commend the regulations to the House.
18:04:52
Mark Garnier
Wyre Forest
I think the Minister and I are going to have an outbreak of unanimity in just about everything we do; we have yet to find something we disagree on. Members will be aware that this legislation was originally due to be implemented in May, but we got caught up in a bit of a general election, which unfortunately did not go quite so well for us. The Opposition therefore fully support the instrument, as Members would imagine.
The Minister made a good point about why the regulations are incredibly important: there are far too many people gaming the system. To support what she was saying, banks incur a great deal of costs as a result, and those costs are inevitably reflected on to consumers; so although it sounds in the first instance like the claims management companies are doing everybody a favour, they are actually increasing the cost of financial services for absolutely everybody. We are therefore wholly supportive of this instrument.
I have a couple of questions. To make sure the instrument does not affect some people badly, can the Minister set out how the Treasury proposes to monitor the changes to ensure that they go according to plan and that, where there is a two-tier system, vulnerable people do not unwittingly find themselves not represented if they use a claims management company?
My other question is on a technicality, and the Minister may not know the answer. The first 10 claims are free of charge for professional representatives. After that, claims cost £250, reduced to £75 if they are successful. Can claims management companies put in class actions—for example, a claim for 1,000 people 10 times—hoping to get a lot of people covered, and thereby potentially increasing the return they could get for each claim, since it is a class action rather than an individual claim, or is the intention that each claim will be an individual case, rather than a group of cases? If the Minister does not know the answer to that now, she should feel free to write to me.
We have absolutely no intention of opposing the instrument. It is a fantastic piece of legislation, brought in by the previous Government, and it is good to see that it has survived the general election, unlike the Minister who signed it off in the first place.
The Minister made a good point about why the regulations are incredibly important: there are far too many people gaming the system. To support what she was saying, banks incur a great deal of costs as a result, and those costs are inevitably reflected on to consumers; so although it sounds in the first instance like the claims management companies are doing everybody a favour, they are actually increasing the cost of financial services for absolutely everybody. We are therefore wholly supportive of this instrument.
I have a couple of questions. To make sure the instrument does not affect some people badly, can the Minister set out how the Treasury proposes to monitor the changes to ensure that they go according to plan and that, where there is a two-tier system, vulnerable people do not unwittingly find themselves not represented if they use a claims management company?
My other question is on a technicality, and the Minister may not know the answer. The first 10 claims are free of charge for professional representatives. After that, claims cost £250, reduced to £75 if they are successful. Can claims management companies put in class actions—for example, a claim for 1,000 people 10 times—hoping to get a lot of people covered, and thereby potentially increasing the return they could get for each claim, since it is a class action rather than an individual claim, or is the intention that each claim will be an individual case, rather than a group of cases? If the Minister does not know the answer to that now, she should feel free to write to me.
We have absolutely no intention of opposing the instrument. It is a fantastic piece of legislation, brought in by the previous Government, and it is good to see that it has survived the general election, unlike the Minister who signed it off in the first place.
18:08:40
Tulip Siddiq
I thank the shadow Minister for his support so far on all the SIs we have debated; long may it continue, but I have a feeling we may disagree on some things in the future. There was cross-party support for the enabling power behind the instrument when it was debated during the passage of the Financial Services and Markets Act 2023. He will remember that at the time, I also supported the then Government, because a lot of the legislation was fit and right for the sector.
We are committed to tackling poor behaviour from professional representatives, as were the previous Government. We want to ensure that the FOS can focus on promptly resolving consumer complaints, as the shadow Minister said, and to reduce the impact of complaints on financial services firms when they are not appropriate.
The shadow Minister asked how long it will take the FOS to implement these rules and how we will monitor them. If the SI is approved, we expect that the FOS will shortly announce when it will start to charge fees. We will then work closely with the FOS and the FCA to progress that important work. There is not really a deadline on it; we just have to see how it progresses after the SI. I guess those organisations are waiting for us to approve the SI before they take on the work, but as he can imagine, we work closely with the FCA and the FOS to monitor progress.
I am afraid I will have to come back to the shadow Minister on his technical question, because I am not sure that we have any answers. It looks like my officials want me to write to him, if that is okay.
I thank the Committee for its consideration of the draft regulations. They may sound simple, but they will have a huge impact on people bringing complaints and how much that costs them. They will play an important role in ensuring that the FOS can properly focus on resolving consumer complaints, a lot of which will come from people who live in our constituencies, and reduce the impact of spurious complaints on financial services firms.
I thank all hon. Members for supporting me and for turning up on a Monday evening.
Question put and agreed to.
We are committed to tackling poor behaviour from professional representatives, as were the previous Government. We want to ensure that the FOS can focus on promptly resolving consumer complaints, as the shadow Minister said, and to reduce the impact of complaints on financial services firms when they are not appropriate.
The shadow Minister asked how long it will take the FOS to implement these rules and how we will monitor them. If the SI is approved, we expect that the FOS will shortly announce when it will start to charge fees. We will then work closely with the FOS and the FCA to progress that important work. There is not really a deadline on it; we just have to see how it progresses after the SI. I guess those organisations are waiting for us to approve the SI before they take on the work, but as he can imagine, we work closely with the FCA and the FOS to monitor progress.
I am afraid I will have to come back to the shadow Minister on his technical question, because I am not sure that we have any answers. It looks like my officials want me to write to him, if that is okay.
I thank the Committee for its consideration of the draft regulations. They may sound simple, but they will have a huge impact on people bringing complaints and how much that costs them. They will play an important role in ensuring that the FOS can properly focus on resolving consumer complaints, a lot of which will come from people who live in our constituencies, and reduce the impact of spurious complaints on financial services firms.
I thank all hon. Members for supporting me and for turning up on a Monday evening.
Question put and agreed to.
Committee rose.
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