Credit, Collections & Insolvency News
The Financial Ombudsman Service (FOS) is set to cut the interest firms must pay on compensation payouts. Currently, firms must pay 8% interest on compensation awards.
The study will look at cutting the interest rate applied to compensation handed down against firms that have lost cases to customers. This is the first step in FOS’s response to the joint Call for Input with the Financial Conduct Authority (FCA), which sought views on how to modernise the dispute resolution system. Further proposals will be brought forward in the summer.
If a consumer is found to have lost out because of their financial firm’s errors, FOS can order the business to pay compensation, plus interest.
There are different types of interest businesses can be directed to pay, and one of these compensates consumers for being “deprived” of money – that is, not having it available to use – such as where an insurance claim has been wrongly turned down. In these cases, FOS can currently direct the business to pay 8% interest on top of the compensation for the period their customer was out of pocket. We can also tell a business to pay 8% interest if it doesn’t pay compensation on time.
Feedback from the Call for Input suggested that this interest rate could be better aligned with, and reflect, market conditions. For new complaints submitted to the service. FOS are recommending changing the interest rate so it tracks against the Bank of England’s base (average) rate +1%. The base rate would be calculated as an average rate over the period that the money was due until the date the redress payment is made. The consultation published is gathering feedback on this recommendation as well as a number of other interest rate options and proposals for implementation.
Interim Chief Ombudsman James Dipple-Johnstone said “The decisions made by our vital service have this year helped thousands of consumers and businesses resolve disputes in sometimes very difficult and stressful circumstances.
“We think that reform of the dispute resolution system is crucial to make it fit for the future. That is why we are acting on feedback from our Call for Input and reviewing a range of our processes to ensure that they work for a modern economy. We welcome feedback from stakeholders on whether our proposed new interest rate strikes the right balance between simplicity, fairness and proportionality.”
