It seems unlikely, for the time being at least, that claims management companies (CMCs) will be required to pay an annual levy to the body that will handle complaints made against them.
Labour peer Lord Witty proposed an amendment to the Financial Services Bill – the legislation which will fundamentally change financial services regulation in the UK – under which CMCs would have paid an annual fee to their regulator, the Ministry of Justice (MoJ), which would have then paid the sum to the Legal Ombudsman. From April 2013, the Ombudsman will be able to adjudicate on complaints made against CMCs, and will have the power to order them to pay compensation to customers of up to £30,000. However, it seems that the only fees CMCs will need to pay to the Ombudsman will be fees for individual cases.
Lord Witty fears that the cost of the Ombudsman handling CMC complaints will be borne by solicitors, who are required to pay an annual levy.
The Government has said that Lord Witty’s plan cannot be implemented as Government departments such as the MoJ cannot pay levies to the Ombudsman as it would impact on taxpayers. Deputy chief whip Lord Newby denied Lord Witty’s claims that solicitors would bear the cost of CMC complaints, asserting that:“the wider legal profession would benefit because case fee generated by the ombudsman from claims firms would be deducted from the levy they pay. The Government’s position is clear – the wider legal profession should not bear the cost of complaints about that claims sector. The arrangements we put in place will be consistent with that principle.”
At present, financial services firms fund the Financial Ombudsman Service (FOS) via an annual levy, which is payable even if the firm has no cases referred to the FOS that year. Firms in this sector also pay FOS case fees for the third and subsequent cases in any year, although from April 2013 the number of ‘free’ cases firms will be allowed will increase to 25.
A Legal Ombudsman spokesman admitted to some misgivings about the situation, by saying: “If we can’t fund it through a levy then there would have to be another way. We are a bit concerned if it is not going to be funded through a levy and want to know how it will be resolved.”
The plans for the Legal Ombudsman to handle complaints about CMCs were first announced in August 2012. At the time, the Law Society’s chief executive Desmond Hudson welcomed the move, pointing out that 8% of CMCs were stripped of their licences in the 12 months to April 2012. Chris Lawrenson, head of legal services at the Building Societies Association, said back in August: “The matter is urgent”, and went on to point out that 74% of complaints about CMCs concerned those who were involved in payment protection insurance reclaim, and that 15 to 20 firms were responsible for the “vast majority” of the complaints.