Last week we responded to the Financial Ombudsman Service’s (FOS) consultation on its future funding model, calling for updates to help support a sustainable credit market for customers with low financial resilience.
The FOS resolves complaints between customers and financial services providers, and makes sure customers receive redress if they’ve been treated unfairly. Currently, all financial services providers are charged a flat fee of £750 for cases that go to the FOS, whether or not a complaint is upheld.
For providers of small, short-term credit – and particularly for non profit community finance organisations – this can mean a significant cost compared to the small returns on their lending.
Small, short-term loans delivered in a fair and affordable way are a vital tool for people with low financial resilience, allowing them to smooth incomes, weather financial shocks or access essential items. But sustained high levels of activity by claims management companies (CMCs) combined with the current case fee model make this a challenging area of the market for providers to serve sustainably.
In recent years there has been a huge contraction in the provision of credit to customers excluded from mainstream lending options. We estimate there are 11 million people who may need access affordable credit.
Our response calls for updates to the FOS funding model that would help support a sustainable consumer credit market for financially excluded customers, while maintaining customers’ rights to free and fair redress. We call for:
- An exemption from FOS case fees for community finance organisations – removing a barrier to these organisations scaling to meet the need for affordable credit, and in line with other regulatory concessions for non profit community organisations
- Varying case fees by product type to reflect the generally lower cost of dealing with consumer credit complaints. In the longer term we also support case fees being proportionate to loan size
- Introducing a modest case fee for CMCs to rebalance incentives between CMCs and firms and improve standards among CMCs