Financial Ombudsman Service is too 'middle-class', says review

Lord Hunt's remit was to consider ways to improve the transparency and accessibility of the FOS, which handles complaints brought by consumers and small businesses against firms providing financial services, such as banks, building societies, financial advisers and insurers. 

"In my view, the FOS still looks too much like a middle-class service, for middle-class people" wrote Lord Hunt in his report. "I believe the profile of those using the FOS should, must and will evolve, as the organisation thinks not only in terms of its traditional areas of activity – dealing with matters such as mortgages, insurance and pension products – but also in terms of the problems that typically afflict our less affluent citizens," he wrote.

"Difficulties with debt management are only likely to increase in scale and numbers as the current economic difficulties mount," he added. "The sums of money involved may generally be on the low side by FOS standards, but the human misery attendant upon them can be devastating."

The report suggests a number of measures to widen the service's appeal, including a more user-friendly name (he suggests 'Financial Complaints Service'), extended opening hours, increased investment in advertising the FOS as a free service, and a fast-track system for lower-value debt- and credit-related cases.

The 73 recommendations do not include making complainants pay a claim fee. "It would be hard to think of any measure that would damage accessibility more comprehensively," he wrote. 

But Lord Hunt is in favour of charging fees to claims management companies that promote vexatious claims, provided the companies can be prevented from passing the extra cost on to consumers. And he believes there is an "increasingly strong case" for such companies to contribute to FOS statutory funding, given the commercial benefit they derive from the service.

In addition, he suggests that defendant firms who deliberately drag out the initial stages of complaints handling and so increase FOS costs (so-called "enforced deadlock" cases) should face penalties.

There are no proposals to change the current "fair and reasonable in all the circumstances" test applied by the FOS when deciding a case. Nor is there any recommendation to allow external appeals against FOS decisions.

The report, however, acknowledges the need for more transparency about the way the FOS operates. Lord Hunt's solution is FOSBOOK – a publicly accessible record of the service's practice and decisions, including case reports (in anonymised form). Future FOS decisions would draw upon and explicitly refer to guidance in FOSBOOK and explain any variation from it. 

Lord Hunt also believes there should be more openness about firms' complaints performance.  His proposals include an annual award scheme for firms that have achieved improvements and a 'wooden spoon' for the worst performers.

Acknowledging that these proposals may be "too radical" for some, he comments: "Performance in complaints handling is a legitimate factor for a customer to take into account when making decisions. Hence it is a legitimate area for competition between providers. It should also be an important consideration for the Treating Customers Fairly initiative".