FOS may raise free case threshold for small firms to 25

The Financial Ombudsman Service (FOS) today proposed a modernisation of its funding model which could increase the number of free cases for small businesses from three annually to as many as 25.

In a consultation paper today, the ombudsman said the new approach would see only 1% of financial firms pay any case fees.

"We propose to increase the threshold at which the case fee becomes payable," the FOS said.

"This threshold is currently the fourth case - with the first three cases free. Our proposal is to raise the number of free cases to between 20 and 25 cases.

"This would mean that more than 60% of those currently paying case fees would no longer do so."

The new charging model, which the FOS said would encourage greater efficiency in complaint handling, is expected to come into effect from April 2013.

The FOS said the current funding model, where case fees are paid by financial businesses when complaints are referred and all retail finance businesses pay a levy, is becoming outdated due to its one-size-fits-all approach.

"The current funding model has found it difficult to cope with the financial risks and costs associated with our handling so-called "mass complaints" such as those involving mis-sold payment protection insurance (PPI)," said the FOS.

It added: "The current arrangements broadly take a 'one size fits all' approach that has needed to suit all users from the largest financial group to the sole proprietor."

The new approach will take better account of the impact different businesses have on its workload through the number of complaints they account for, it said.

Elsewhere, the ombudsman suggested the model for medium sized firms should be "largely unchanged" whilst larger firms could see a new group account arrangement.

Responses to the consultation paper should reach the FOS by 16 April.