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FOS levy up £20m as payday lending complaints soar

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  • 17/12/2018
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FOS levy up £20m as payday lending complaints soar
The Financial Ombudsman Service (FOS) is planning to raise its levy for 2019/20 by £20m to support increasing case numbers and its coverage of the claims management and SME sectors.

 

FOS revealed that complaints about payday and other short-term lending have soared during the current financial year while IT issues at TSB prompted a spike in banking-related issues.

However, mortgage-related complaints are on course to remain close to last year’s level of 8,888 for the current 2018/19 year.

The regulator is proposing next year to raise the levy that applies to all businesses it covers by an additional £20m from 2018/2019’s level, to £45m.

This will accommodate the increasing case load and new jurisdictions such as claims management companies (CMCs).

“We expect the levy distribution as a result of these areas to fall in subsequent years, after we have recovered the initial investment,” the FOS said.

“This means the 2019/2020 levy will involve an annual cost for individual firms ranging from about £16 for the smallest businesses we cover, to £2.7m for the largest financial providers.

“Due to their being in a fixed tariff-based block, 56% of businesses, generally smaller businesses, will see no change in their levy amount,” it added.

It will cost around £2.2m to cover CMCs, around £5m to extend operations to include SME firms, with £11m being for investing in the service and building capacity.

 

Payday loan complaints up 172%

Overall the regulator is expecting to receive a 20% increase in complaints in the 2018/19 year – almost double the 12% growth it had originally forecast.

Short-term lending such as payday and installment loans have the seen the biggest increase, more than doubling from 18,378 last year to around 50,000 this year.

FOS had expected to see a modest increase to just 20,000 complaints.

Banking and credit complaints, excluding packaged bank accounts and short-term lending have also grown noticeably, with an expected increase of 22% from 74,162 last year to 90,500 in the current year.

Again, here FOS had projected only a slight increase to 74,900 for 2018/19.

Perhaps surprisingly payment protection insurance (PPI) complaints although rising, are now no longer taking-up more than half the Ombudsman’s case load – rising from 186,417 to an expected 200,000 this year.

 

IT issues prompt bank case rise

For payday lenders, around half the complaints received are upheld with cases typically from from people who’ve been given many loans.

The FOS noted that in many cases lenders had failed to ask sufficient questions upfront and as the relationship continued to ensure it was responsible and sustainable to continue lending.

“Given the likelihood of compensation being paid, it’s unsurprising that claims management companies are particularly active in this area,” it said.

The regulator also noted the effect the serious IT issues at TSB had on its caseload and that it was particularly important for banks to have fully working systems.

“During the summer of 2018, IT trouble at the bank TSB accounted for a significant rise in people contacting us about banking,” it said.

“Over recent years we’ve handled a number of instances of online banking outages – and have worked with banks to understand the steps they need to take to ensure they address the practical impact of the problems, which often goes well beyond the inconvenience of being unable to log in.

“With online banking increasingly the norm, we, like banks themselves, need to be ready to respond to these types of problems with the urgency required,” it added.

 

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