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The FOS must make a final decision on the level of its reserves this month, as firms' continued refusal to pay fees linked to payment protection insurance (PPI) cases look set to exhaust funds and force levies to rise by as much as 25%.
The Ombudsman warned in January the decision among some firms, including large high street banks, not to pay up when receiving an unfavourable ruling over PPI could cripple it "in six weeks".
To continue day-to-day operations, the Ombudsman could be forced to pass the cost onto the whole industry - not just PPI sellers - via an emergency interim levy, similar to that issued by the FSCS in January to pay for a series of investment firm failures.
Annually, the cost of dealing with soaring PPI claims could send firms' FOS levy for 2011/12 as much as 25% higher, the Ombudsman has said.
FOS says it expects its total number of cases for the year to March 2011 to be 7% higher than last year, but within this figure PPI cases have risen by almost 40%.
But many PPI sellers are refusing to co-operate with the FOS until the outcome of a judicial review into PPI mis-selling by the British Bankers Association (BBA). This includes paying the case fees which make up 80% of the FOS' income.
Loss of income from case fees in just one month could lead to an operating monthly deficit of up to £4m for the FOS.
For the current financial year and 2011/2012 this could involve an amount totalling between £10m and £30m, well in excess of its reserves.
The FOS said in January it would need to make a final decision on its reserves by the end of this month.
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| Comment | FOS funding nears crisis point; Levy hike looms |
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???????
Somebody please explain - I thought that an FOS ruling was binding on a firm. If this report is accurate then if I ever get an unfavourable FOS ruling does it mean that I too can keep my wallet shut? Or does this just apply to the big boys who have the financial muscle to fight the FOS? If so - level playing field???? Two tier regulation??? What happens then if we small guys just ignore any extra levy which might be applied to cover PPI – a product that hardly any IFA dealt with? I see a riot coming on that will make last week end’s event look like a tea party.
Posted by: Harry Katz
Fraudulent Preferce
Correct me if I am wrong, but this isn't about decisions going against the banks, this is about having to pay the FOS fee for reach case? IFAs have said for years as Neil has said, both parties/individuals should have to pay even a modest fee for mediation (or ombudsman) otherwise, any chancer can complain knowing that it will often cost a firm more than the compensation to simply defend spurious complaints. Yet the establishment thought they knew better and now the bansk are refusing to pay. Were it us refusing to pay, the FSA would deem us not fit and proper and sanction us accoringley removing our right to trade/earn a living. If the banks refuse to pay and the FOS try to levy extra against other firms and WE all rfuse to pay. I don't think a judge will look favourably on any attempt to remove OUR right to trade unless the F-pack have taken legal action against the banks first. Maladministration in public service comes to mind.... Which banks are refusing to pay? Name and shame.
Posted by: Nameless
Rules?
I thought the FOS only got involved after a final refusal re a complaint. Surely if the banks are allowed to wait for the J review then no case should be looked at for now. If the FOS are correct then I'm sure if the FSA threatened one bank with loss of authority they would all fall into line. Even if they carried on with their tied arms the IFA "wealth team" would have to cease
Posted by: Bewildered IFA
Banks above the Law?
Will the banks also refuse to pay their share of the extra levy until the judicial review decision? If so, then the innocent will end up being bankrupted footing the full cost of the compensation! What nonsense.
Posted by: Just another confused observer
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Don't come rattling the can around here!
If the FOS thinks I'm paying extra to subsidise the banks it can get stuffed. When Arthur Scargill and his miners thought they could ignore the law their assets were subject to sequestration. I suggest a similar remedy be applied to the banks if they won't pay their dues. I have written many times on the need for FOS to operate a commitment fee system and for claims chasers to be made to contribute by way of an annual levy per firm. Maybe now the FOS and its political masters will start to listen.
Posted by: Neil F Liversidge