Financial Ombudsman Case Fees; The Snakes are Out.

One of the best books I've read on law in the last year or so is "Making Laws that Work..." by David Goddard.

He makes a number of propositions, my favourite being that legislators need to understand (not just consider) the effect of legislation before enacting it. He cites the following example.

A town was plagued by wild snakes. The legislators sought to quell the problem and decided to pay the town's folk for the capture and delivery of snakes to the authorities. The townsfolk, realising they could earn significant sums, decided to breed the snakes themselves. When the authorities realised what was happening, they decided to scrap the scheme. The townsfolk, now not having a purpose for the snakes, released them all into the town.

The result: significant expenditure, increased snake problem.

FOS fees.

The Financial Ombudsman Service, we are often told, was created to act as an informal alternative to the courts. It is free for consumers and simple to use. FOS’s jurisdiction is also intended to be much more favourable to consumer protection; adopting a basis for decisions on what is “fair and reasonable” rather than being confined to a legalistic approach of interpreting law. Until now, it has not taken any steps to limit consumers rights to appoint a representative.

How, then, does the decision of the Ombudsman to impose a mandatory fee on consumer representatives impact on this?

Firstly, to take Goddard’s approach; what is the effect of imposing a fee? To my mind, there is currently no way of avoiding the fee and maintaining compliance with the regulatory framework. The challenge, then, is to reduce the cost.

FOS supposedly caters for this by offering a refund on a part of the case, if the consumer “wins.” The end result being an aggregate cost of ￡75.

Is that cheaper? Not necessarily.

Most motor finance cases are worth somewhere between ￡900 and ￡1500. The cost of starting a claim for this amount in court is between ￡70 and ￡115, irrespective of outcome. Most law firms can therefore commence proceedings with less risk and a persona of “we really mean it.”

Will they go down this route?

Possibly. If I were a lawyer and had the resources, I probably would. The outcome is more predictable, I can recover disbursements, and I can enforce disclosure.

What, therefore, is the possible result of this?

Consumers may instruct their lawyers to turn to the courts. The courts may become inundated with claims and consumers cases will now receive formal consideration in a legalistic arena.

In others words, it is everything FOS was created to avoid; the snakes are out.

Secondly, there is a constitutional impact.

In 2013, the Ministry of Justice made the Employment Tribunal Fees Order. It removed the right of aggrieved employees to sue their employers for free and imposed mandatory fees. The stated aims of these fees was to reduce unmeritorious claims and to encourage earlier settlement.

Unison, a trade union, bought a claim in judicial review challenging these fees.

The Supreme Court decided this order was unlawful, because it limited access to justice. Lord Reed gave the leading judgment and said (R (on the application of UNISON) v Lord Chancellor [2017] UKSC 51):

71. But the value to society of the right of access to the courts is not confined to cases in which the courts decide questions of general importance. People and businesses need to know, on the one hand, that they will be able to enforce their rights if they have to do so, and, on the other hand, that if they fail to meet their obligations, there is likely to be a remedy against them. It is that knowledge which underpins everyday economic and social relations. That is so, notwithstanding that judicial enforcement of the law is not usually necessary, and notwithstanding that the resolution of disputes by other methods is often desirable.

72. When Parliament passes laws creating employment rights, for example, it does so not merely in order to confer benefits on individual employees, but because it has decided that it is in the public interest that those rights should be given effect. It does not envisage that every case of a breach of those rights will result in a claim before an ET. But the possibility of claims being brought by employees whose rights are infringed must exist, if employment relationships are to be based on respect for those rights. Equally, although it is often desirable that claims arising out of alleged breaches of employment rights should be resolved by negotiation or mediation, those procedures can only work fairly and properly if they are backed up by the knowledge on both sides that a fair and just system of adjudication will be available if they fail. Otherwise, the party in the stronger bargaining position will always prevail.

Lord Reed’s judgment rightly focused on the constitutional implication of introducing fees that limited access to the courts by the hand of a minister.

Do I suggest that the situation is analogous in impacting consumer’s rights to access to the courts? No. The FOS fees encourage, not discourage, access to the courts - as I have argued. However, whilst Unison was about access to the courts, not an independent complaints scheme, FOS is a scheme which consumers are entitled to use as a matter of statutory right. The FOS fees therefore interfere with this right by impacting on other area of constitutional importance: the right to representation.

Since time immemorial, individuals have had the right to appoint individuals to represent and argue for their cause. Our system of justice has entertained this as a matter of course because it recognises that disputes cannot fairly be argued when only one side of it has the financial resources of a small country.

As Lord Reed said: “those procedures can only work fairly and properly if they are backed up by the knowledge on both sides that a fair and just system of adjudication will be available if they fail. Otherwise, the party in the stronger bargaining position will always prevail.”

The FOS fees order is an affront to this right because it will likely make it commercially unviable to represent consumers. That will leave consumers in a position where they represent themselves in a complaints scheme where the rules have been written by the business they are complaining about. The fact it has been done at the hand of a minister makes it all the worse and possibly unlawful.

Of course, FOS and the lenders who lobbied for it will say consumers can still make complaints themselves. But a consumer can take a lender to court themselves; would anyone seriously advise them to do so? No; they would argue caution, recommend getting advice and engaging representation.

Conclusion.

FOS have not considered the impact of legislation beyond their own selfish aims. They have very likely increased the costs of access to justice and done so with a high-handed ministerial weapon.

It is an appalling piece of legislation.

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