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Businesses to face extra fees for PPI referrals as regulator predicts record year


Businesses which have multiple payment protection insurance (PPI) claims referred on to the independent financial services ombudsman will have to pay an additional fee for each claim from next financial year, the regulator has announced.

The Financial Ombudsman Service (FOS) said that an additional £350 per case would be charged where businesses had more than 25 of these cases referred over the course of a year, "reflecting where the costs are actually incurred" in sorting out what it expects to be a record year for PPI mis-selling referrals.

The FOS currently charges a fee of £500 per case to businesses for their fourth, and each subsequent, complaint. The service is also funded by a levy charged on the financial services sector. The current fee structure meant that three quarters of businesses whose complaints were referred on to the service paid no case fees, the FOS said.

Principal ombudsman Tony Boorman said that the new fees would ensure that the service would have the "operational capacity" to handle the expected volume of claims.

"A year after the High Court ruling gave us legal finality on the approach that financial businesses should take on PPI complaints, it's disappointing that there's little finality for significant numbers of consumers who are still waiting for their bank or insurer to deal with their complaint. The delays and inconvenience that this causes consumers means the ombudsman now has to gear up for unprecedented demand and volatility in our workload," he said.

The comments came as the FOS published an update on its workload for the current financial year, along with a consultation (34-page / 1.3MB PDF) on its proposed plans and budget for the year 2012-13.

The regulator anticipates a significantly greater workload with a 25% increase in new cases taken over the final total it estimates for 2011-12. In addition it notes a "continuing shift" towards more complex and harder-fought cases, increasing the resources it needs to deal with disputes.

In a statement, the service said that it expected to take on a record 130,000 cases involving mis-sold PPI in the next financial year – just under half of its anticipated overall workload of 285,000 cases. It also expects to answers 1.4 million consumer enquiries, up from the total 1.2m it expects to have dealt with by the end of the current financial year.

In November, the FOS told Out-Law.com it was upholding 90% of PPI cases that had been referred to the service. Banks have been paying an average of £2,750 to customers who were sold PPI and later found that they were ineligible to make claims. PPI is intended to cover repayments due on loans for people who cannot afford to pay because of an accident, sickness or death.

The Financial Services Authority (FSA), which regulates the UK's financial services industry, issued new rules on selling PPI in 2010. The new rules, which came into effect from 1 December that year, said that customers could make retrospective complaints about insurance packages they were mis-sold. In April last year a High Court judicial review into PPI complaint-handling procedures dismissed attempts by UK banks to challenge the rules on the grounds that they imposed stricter selling standards than those in place at the time the PPI sales were made.

The FSA is currently consulting on proposed new guidelines (32-page / 375KB PDF) on how PPI and realted products should be sold in conjunction with consumer protection regulator the Office of Fair Trading (OFT). The consultation closes later this month.

The FOS is also consulting on the introduction of a new case fee structure (22-page / 743KB PDF) from April 2013 which would allow businesses with low numbers of complaints an increase from three to 25 free referrals a year. Only 1% of businesses would then pay any case fees at all, the regulator said.

It also plans to introduce a new group-account arrangement for the ten financial services groups that account for over 70% of its complaints workload, it said.

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