Clause 60 - Funding of ombudsman scheme
Consumer Credit Bill
3:44 pm
Mr Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations, Competition and Consumers), Department of Trade and Industry; Bradford South, Labour)
To recap, I had said that the ADR scheme would be funded by a modest annual levy with the case fee payable by those businesses whose complaints are considered at ADR. I also said that the majority of firms will never pay the case fee if their cases do not get as far as requiring ADR. Firms that come before the FOS currently get the first two cases in a year free anyway. Therefore, ADR will be much cheaper for firms than going to court.
I am not clear how the proposal to fund the arrangements would work in the scenario offered by the hon. Member for Tewkesbury (Mr. Robertson). Case fees for businesses that lose cases will be likely to increase dramatically. The FOS takes all steps possible to ensure that firms do not pay unnecessarily for ADR. When the FOS receives a complaint, it attempts to resolve it informally before the case is opened. If it is successful, no case fee is payable. The FOS will consider a complaint only when a firm's internal complaints handling procedures have been exhausted; the FOS also has a screening system to filter out complaints that are obviously frivolous or vexatious. The outcome of the ADR is rarely as straightforward as simply upholding or dismissing a complaint; and the solution given by the FOS is often somewhere between a win or a lose for the consumer or the lender. As such it is not usually obvious whether a firm should pay the case fee or not.
It is vital that the FOS be independent of both consumer and firm, and it must be seen to be independent. A case fee determined by the success of a complaint would give the FOS a financial stake in its own determination, and that would undermine industry and consumer confidence in the ADR scheme. Although the Bill gives the lender many opportunities to avoid going as far as the ADR, it also ensures that the FOS remains self-funding. If the case fees are too small, firms may be put out of business, and we do not want that.
I hope that with that explanation the hon. Member for Tewkesbury will withdraw his amendment. If he does not, I shall have to ask the Committee to vote against him.