Financial Ombudsman Service – Plans and Budget 2021/22

The Financial Ombudsman Service (FOS) has published its Plans and Budget document for 2021/22, confirming the service’s levies, charges and allowances for the next financial year. As proposed in the budget consultation in December, there is a freeze on the key charges and allowances that affect credit unions. However, the FOS anticipate a continued high case load for the next financial year, including an increase in complaints related to the affordability of lending.

Budget for 2021/22

The confirmed budget stands to maintain the cost of using the FOS to credit unions at the level seen in previous years. The Plan & Budget has confirmed a freeze in the minimum levy charge, meaning that credit unions will continue to pay the same yearly fee of £55 for the Ombudsman Service. A freeze in the number of free cases for each firm has also been confirmed, so credit unions will continue to get 25 free cases per year.

The case fee has been increased to £750, up from the previous £650, though this change will only affect the 1 in 10 of all firms using the FOS that exceed the 25 free case allowance. The overall levy fee has also been increased to £96m, though this levy increase is smaller than the increase consulted on in December. The overall increase is due to the ongoing high demand the Financial Ombudsman Service has faced since the beginning of the pandemic. The FOS anticipate that the rise in case fee and the levy will allow a freeze in the levy and case fee for the next three years.

Rise in Affordability Complaints

A significant number of total of claims is projected for the year ahead, and credit unions should be aware of a general increase in complaints against financial services firms. The Plan and Budget states that the FOS anticipates a large increase of complaints in relation to the affordability of borrowing, and that the FOS is seeing a portion of these complaints cases where lending should not have taken place.

This trend in complaints on affordability is already becoming apparent in the credit union sector, so credit unions should be aware of the complexity of this issue and evaluate their affordability assessment policies for lending where appropriate. The FOS also stresses that firms should engage with the guidance on vulnerability recently published by the FCA, as this issue has proliferated with the COVID-19 pandemic. This guidance can help credit unions in dealing with vulnerable members appropriately and mitigate the risk of unfair treatment.

If you are concerned about an increase in complaints related to the affordability of your credit union’s lending, please get in touch with the ABCUL Policy Team at policy@abcul.org, so we can discuss approaches and resources available to help mitigate this issue.