The Financial Ombudsman Service (FOS) is
proposing to change the annual threshold of the number of
complaints made against a company selling financial products
without being charged a £500 case fee from three to 25 cases per
year.

Where a complaint does have sufficient grounds
to be referred up to the FOS, however, the ombudsman proposes an
additional fee of £350 to help it deal with its case load.

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The proposals are part of a
preliminary round of consultation over how the FOS charges
financial businesses. The consultation closes on 16 April and no
changes would take effect until April 2013.

Compliance consultant Karen Wagstaffe of KMW
Automotive Solutions Limited said that most of her clients would
fall into the category of dealing with between three and 25 cases
each year:

“This will certainly help when dealing with
any PPI (payment protection insurance) or GAP / warranty related
complaint and I am sure some of the outcomes, and how you initially
deal with these complaints internally, may be somewhat different if
the threshold does rise to 25.

“My suggestion here is to liaise with the
Retail Motor Industry Federation and
perhaps get together to endorse or feedback positively in
favour.”

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The £9bn pot

Currently, businesses that have more than
three complaints made against their selling of financial products
in a year are charged £500 for every additional complaint, whether
it is referred up to the FOS or not, and whether a firm is found to
have mis-sold a financial product or not.

The recent explosion in claims made over PPI
sold by banks and insurers has spread to the motor finance sector,
with many vehicle financers – brokers, lenders and intermediaries –
facing more than three complaints per annum.

The FOS has 130,000 investigations into PPI
mis-selling to process in 2012/13, more than twice the 2010/11
figure, and expects to take on 285,000 cases in the next financial
year.

Since the High Court ruling that new guidance
on sales of PPI could be applied retrospectively, total
compensation payout has been predicted to reach between £7bn and
£9bn, with the Financial Services Authority stating that over £1bn
of compensation was paid in the first 10 months of 2011.

Given the potential pot of compensation and
the lack of need to prove mis-selling, complaints management
companies have found motor finance companies an easy target,
prompting customers to register a complaint with the FOS and taking
a slice of the automatic £500 case fee, which many financers are
willing to pay rather than incur further costs.

richard.brown@vrlfinancialnews.com