We’ve responded to a joint consultation from the Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS) on modernising the redress system. We welcome the consultation and the opportunity to offer views on changes to the redress system

In recent years mass redress events have affected the consumer credit market. This has had a significant impact on consumers, as redress has been delayed, or not given, due to some firms collapsing or exiting the market. And it has also had wider market impacts, as firms and investors have become nervous about serving currently excluded customers.

Currently, millions of people are excluded from access to even small amounts of credit. LEK Consulting has estimated the (serviceable) market gap in affordable credit to be £2bn. Action is now needed to widen and deepen access to affordable credit.  

Small, short-term loans delivered in a fair and affordable way can be transformative for people with low financial resilience, allowing them to weather financial shocks or access essential items.

We want to see a redress system that supports better access to fair financial products and services for financially excluded customers. In our response we set out:

• We support more strategic coordination between the FCA and FOS to reduce the wider market impacts of mass redress events. For example, we agree that the FCA and the FOS should do more to consult each other around cases that may have wider implications and to make views more widely known publicly

• We agree that the FOS should have more discretion to decide not to accept poorly evidenced cases, or to dismiss complaints when alternative redress schemes have already been set up. We also support giving the FCA and FOS more powers to pause redress procedures while they determine an appropriate approach. These measures would reduce the burden on the FOS caused by mass redress events and would support greater coordination across the regulatory family

• We would like to see greater regulatory clarity on what industry best practice should look like for serving customers in financially vulnerable circumstances, especially around improving access to affordable credit. We think this would give firms more confidence and enable the innovation that is needed to serve millions of customers who are currently excluded or underserved

Financial Ombudsman Service Plans and Budget 2025/26 Consultation

We have also responded to the Financial Ombudsman Service’s Plans and Budget 2025/26 Consultation.

In our response we recommend that the FOS extends the scope of its case fee exemption for Community Finance Organisations (CFOs), which as drafted currently excludes all CFOs lending at significant volumes and so will not achieve its intended public policy impact.

We would like to see more guidance on how FOS considers the use of Open Banking in affordability assessments. There is huge potential for Open Banking to improve access to credit for excluded consumers, but some firms are reluctant to adopt it due to perceptions of regulatory risk.