Big change to compensation rules plotted by financial ombudsman after complaintsA big change to compensation rules is being plotted by the financial ombudsman after a spike in complaints. The Financial Ombudsman Service (FOS) is proposing to change the interest rate applied to the compensation awarded to consumers and tie it to the Bank of England (BoE) base rate.
If a consumer is found to have lost out because of their financial firm’s errors, the Financial Ombudsman 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.
The Ombudsman can currently direct the business to pay 8% interest on top of the compensation for the period their customer was out of pocket. It can also tell a business to pay 8% interest if it doesn’t pay compensation on time.
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James Dipple-Johnstone, Interim Chief Ombudsman at the Financial Ombudsman Service, 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.”
But the service said feedback suggests the interest rate “could be better aligned with, and reflect, market conditions”. For new complaints submitted to the service, it is recommending changing the interest rate so it tracks against the Bank of England’s average base rate plus one percentage point.
The base rate would be calculated as an average rate over the period that the money was due until the date redress payment is made. The consultation is gathering feedback on this recommendation as well as other potential options and proposals for implementation.
The Bank of England base rate currently sits at 4.25%, its lowest level in two years. Economists have speculated that two more reductions could happen this year.
James said: “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.”
The consultation is available here and will run until 2 July 2025.