By Nick Baxter
14th January 2014
 

At this time each year, the Financial Ombudsman Service [FOS] issues an annual plan and budget consultation document. This year is no exception and the most recent consultation document is shown on the FOS website at http://www.financial-ombudsman.org.uk/publications/2014-ourplans.pdf. This covers the 2014/2015 annual plan and budget.

100,000’s of unresolved PPI claims and rising

The consultation document makes interesting reading as it gives the FOS view on the level of complaints they expect to receive in the future. Although Payment Protection Insurance [PPI] complaints represent just one category of financial mis-selling, it is the most voluminous product in terms of number of complaints and is, therefore, the one that most commentators use as a barometer to assess how financial institutions are performing. When FOS last consulted in January 2013, their 2013/2014 plan was based on an assumption that they would receive 250,000 new PPI cases. In reality, the number was closer to 350,000 new cases. Against this inflow of new business FOS have built up an unresolved stock of 400,000 PPI claims! Although FOS anticipates a reduction in claims in 2014, they are still receiving over 6,000 new claims every week. This means that at the current rate they will still receive a higher number of PPI complaints than the 2013/2014 prediction.

FOS is requesting respondents to consider:

  • “our overall aims: how we are implementing our plans for developing our service, and where you believe our priorities should be
  • the volume of new cases you expect us to receive – and whether the assumptions we have made for case volumes are reasonable
  • the volume of complaints about mis-sold PPI you expect we will receive, and whether our plans for dealing with these cases are realistic
  • our proposals to freeze the levy and standard case fee; our plan to reduce the PPI supplementary case fee to £0; to maintain the number of free cases at 25; and to extend the group-account fee; and our approach to managing our reserves over the coming period”

Winding down our PPI operations?

Two years ago FOS introduced a supplementary case fee of £350 for complaints about mis-sold PPI. In this proposal FOS state that the fee has allowed them to build reserves which will allow them to “tackle the rest of the PPI challenge – including resolving the large number of existing PPI cases on our books and, in due course, the costs of winding down our PPI operations.” FOS, therefore, propose that they no longer charge businesses the £350 supplementary case fee for PPI complaints.

Apply the surplus funds to sorting out the backlog!

At the same time as making this proposal, FOS remind us that “PPI is a challenge that it will take us years – not weeks and months”. So while on the face of it, any action which reduces the overall cost of independent third party adjudication should be welcomed, one has to question the timing of the FOS proposals. As previously stated, the FOS discussion document shows that they are sitting on over 400,000 pipeline PPI cases, it also shows that they expect PPI claims to take years to sort out. Having carried out some research with one of the members of the PFCA covering 1000’s of FOS submissions, I know that half their FOS case pipeline has been sat at FOS for over 6 months (and a fifth of those cases have been at FOS for over a year). FOS may be embarrassed by the surplus funds they have amassed, but the surplus should be applied to sorting out the backlog more quickly than FOS anticipate.

Dropping the £350, the timing makes no sense

If the PFCA member’s figures carry across the industry, over 200,000 customers have been in the pipeline for over 6 months and 80,000 have been in for over a year! From the outside looking in, it appears that the consumer detriment caused by these unacceptable pipelines is bottom of the FOS financial accountants thinking. At a time when the Ombudsman is pleading for patience, the timing of this decision makes no sense.

Response?

Anyone wishing to respond to the FOS consultation has until 17 February 2014. The full details of how to respond are contained within the consultation document.