Ombudsman hikes budget to settle "volatile" PPI complaints

The Financial Ombudsman Service is proposing an increase of up to £15m in its budget for 2011/2012 - the result of a huge increase in complaints connected to payment protection insurance (PPI).

FOS today published its public consultation on its proposed budget for the next financial year, setting out how it plans to deal with what it described as "a potentially volatile caseload" of between 152,000 and 208,000 cases in 2011/2012.

This compares with the 180,000 consumer complaints that the ombudsman expects to resolve in the current financial year.

FOS said the volatility in complaint numbers is largely driven by cases involving PPI.

The volume of PPI complaints is significantly higher than originally anticipated so far this year, it added.

68,000 PPI complaints are forecast for 2010/11, substantially more than the 46,000 cases budgeted for.

Where as complaints about other financial products, such as investments, continue on a downward trend.

But there has been a general shift towards more complex and harder-fought cases – with higher proportions requiring a formal decision by an ombudsman.

Taking into account the rise in PPI complaints, the total number of cases referred to the ombudsman service in the current financial year (2010/2011) looks likely to be 7% higher overall than in the previous year.

To deal with the volatile levels of demand being forecast for its service in 2011/2012, the ombudsman said it is likely to need a budget of between £90m and £116m – compared to a forecast of £101m in 2010/2011.

As part of its plans for funding the service in 2011/2012, the ombudsman proposes freezing case fees and the total levy paid by the financial services industry – for the second year running.

This means that the case fee – paid only by the small minority of businesses that have four or more complaints referred to the ombudsman service during the year – will again be frozen at £500.

These proposed budget arrangements are dependent on the ombudsman receiving the types and numbers of cases set out in this consultation.

They do not take into account any additional costs that could arise in connection with the British Bankers Association’s upcoming judicial review of PPI-related matters.

Insurance Times’s Fair Fees campaign is seeking to curb an eight-fold increase in the Financial Services Compensation Scheme levy for brokers, the result of compensation payments to customers mis-sold PPI products. Click here to sign the petition.