Financial Ombudsman set to slash the 8% interest on compensation firms have to pay when things go wrong
The Financial Ombudsman is plotting a major shake-up of how much interest firms have to pay on compensation pay outs which would make it far less generous for consumers ruled to have been treated unfairly.
Currently, firms are ordered to pay a flat 8 per cent interest on compensation awards.
But the Ombudsman has announced it is launching a consultation to review the amount of interest firms pay on compensation awards after a Call for Input with the Financial Conduct Authority where it sought views on how to update the dispute resolution system.
It could push through new rules that would see the interest on compensation paid to people when things go wrong from 8 per cent to the Bank of England base rate plus 1 per cent, which would currently mean a far lower 5.25 per cent.
If a consumer is found to have lost out financially because of an error by a financial firm, the FOS can force the business to pay compensation, plus interest on top.
There are different types of interest the FOS can order businesses to pay, and one of these compensates consumers for losing out financially - such as where an insurance claim has been wrongly turned down.
In these cases, the Ombudsman can currently order the firm to pay 8 per cent interest on top of the compensation for the period their customer was out of pocket.
It can also tell a business to pay 8 per cent interest if it doesn't pay compensation on time.
However, for new complaints submitted to the service, the Financial Ombudsman is recommending changing the interest rate so it tracks the Bank of England's base rate plus 1 per cent.
The base rate currently stands at 4.25 per cent, the lowest level in two years, and markets are pricing in three more cuts before the end of the year.
With the base rate at its current level, they amount of interest firms could be ordered to pay if it is 5.25 per cent. This would fall if the base rate continues to drop.
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 Financial Services Ombudsman said: 'Feedback from the Call for Input suggested that this interest rate could be better aligned with, and reflect, market conditions.'
It comes as The Financial Ombudsman has been facing increasing demand for its service in recent years. Last year it resolved more than 200,000 complaints.
James Dipple-Johnstone, interim chief ombudsman at the Financial Ombudsman Service, said: 'We think 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.'
The consultation will run until 2 July 2025.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Sun
25 minutes ago
- The Sun
Aldi confirms ‘addictive' discontinued crisps will return in months after shopper fury
ALDI is bringing back "addictive" crisps in a matter of months after they were axed. Shoppers were left distraught after spotting the Specially Selected Prawn Cocktail Crisps missing from shelves earlier this year. The 150g bag cost £1.09 and came as part of the discounter's premium range. But the picky bits are set to make a comeback later this year, Aldi has confirmed, following customer fury. Julie Ashfield, chief commercial officer at Aldi UK, said: 'We always do our best to listen and meet our customers' requests. "These crisps are clearly a fan favourite, so we are excited to bring the flavour back — watch this space." Aldi has not revealed an exact date the crisps will be available but is urging customers to keep an eye on its website and store shelves. It comes after eagle-eyed customers took to social media earlier this month to ask where the crisps, based on the classic British starter, had gone. One, posting on X, said: "What's happened to the prawn cocktail crisps? Bring them back please!" Shoppers who can't wait for the Specially Selected Prawn Cocktail crisps, branded "addictive" and "amazing", to be reintroduced to shelves can buy one alternative. Aldi also sells the more budget Snackrite Prawn Cocktail crisps, with packs of six smaller bags costing 89p. It is not the first time Aldi has axed a product customers love. It recently quietly removed the Specially Selected Caramel Layered Yogurt from its shelves. Shoppers only discovered the yogurt was discontinued after struggling to find it in their local shop. The German discounter has dropped Deli Smoked Pork Sausage and Deli Smoked Reduced Fat Pork Sausage 160g packs from many of its shelves as well. ITEMS MAKING A COMEBACK Retailers often bring back nostalgic and previously discontinued items, based on customer demand and appetite. Discos, owned by KP Snacks, is bringing back its beloved pickled onion flavour that was last seen on shelves in the noughties. The savoury bites will be sold in convenience shops across the UK from August 27. The 70g bag costs £1.35. Meanwhile, White chocolate Maltesers made a grand return to shelves earlier this year after a 10-year hiatus. A 30g bag is currently available to buy in Morrisons for £1.05, while a larger 74g pouch costs £1.75. Elsewhere, Opal Fruits, which were rebranded as Starburst in 1998, are available from Sainsbury's for £1.25. Why are products axed or recipes changed? ANALYSIS by chief consumer reporter James Flanders. Food and drinks makers have been known to tweak their recipes or axe items altogether. They often say that this is down to the changing tastes of customers. There are several reasons why this could be done. For example, government regulation, like the "sugar tax," forces firms to change their recipes. Some manufacturers might choose to tweak ingredients to cut costs. They may opt for a cheaper alternative, especially when costs are rising to keep prices stable. For example, Tango Cherry disappeared from shelves in 2018. It has recently returned after six years away but as a sugar-free version. Fanta removed sweetener from its sugar-free alternative earlier this year. Suntory tweaked the flavour of its flagship Lucozade Original and Orange energy drinks. While the amount of sugar in every bottle remains unchanged, the supplier swapped out the sweetener aspartame for sucralose.
BBC News
28 minutes ago
- BBC News
Teachers at closing Fulneck School in dispute over pay
Members of a teachers' union at an independent school due to close next month have declared an industrial dispute, claiming they have been told they would not be paid for the second half of the final School, in Pudsey, Leeds, announced in March that it would close on 8 July due to a decline in enrolment and rising costs. The NASUWT said its members had been informed after the May half term that the school could no longer afford to pay them, but they must continue working until the the school said staff would be paid up until 8 July, with a spokesperson for the school's trustees adding that they remained committed to a "regular and open" dialogue with staff. The independent day and boarding school, founded by the Moravian church, has been teaching for more than 270 years. Announcing the closure earlier this year, the school blamed "a continued decline in enrolment, combined with rising operational costs" for making it "increasingly challenging to maintain financial viability". 'Kick in the teeth' Announcing the dispute, a spokesperson for the NASUWT said many of its members at the school had had long careers there, often "making sacrifices" to keep it running, such as forgoing pay increases."As a result of the school's decision not to pay them for the last half term, Fulneck teachers stand to lose 14% of their annual salary," a union spokesperson said. "Even if they are able to secure positions at other schools, they will go from July to the end of September with no pay – despite the fact they have earned that money."Matt Wrack, acting general secretary of the NASUWT, said union members at the school had "pulled out the stops to support their struggling pupils this term, and it has come – quite literally – at their own expense"."After years of sacrifice for the good of the school, losing months of pay is a real kick in the teeth," he Toepritz, the union's national executive member for Leeds, said the school's teachers had undergone a "collective trauma"."They have spent the last term supporting panicking pupils through exams and school transitions, all the while frantically searching for new roles themselves," he said."On top of that, they now face unpaid bills over the summer."But Fulneck teachers are strong, and they won't go down without a fight. The school needs to abide by its church's mission statement and pay up." 'Ongoing support' However, according to the school, staff would be paid up until 8 July – the proposed date of the school's closure and planned insolvency - and in line with the school's legal obligations as an percentage calculated by the NASUWT did not reflect the entitlements for staff through redundancy and notice pay, which would be processed through the government's Redundancy Payment Service and triggered following the school's planned liquidation, it said.A spokesperson for the school's trustees said their priority was to ensure a "fair and transparent process" for everyone affected."The trustees have provided ongoing support throughout the school's operation and closure process," they added. "Communication channels remain open for staff to raise concerns, and the trustees are committed to ensuring all legal obligations are met."No further comments can be made while the formal consultation process is ongoing." Listen to highlights from West Yorkshire on BBC Sounds, catch up with the latest episode of Look North.
The Independent
33 minutes ago
- The Independent
Starmer issues fresh pledge to shake up ‘broken' welfare system
Prime Minister Sir Keir Starmer has defended his plans to reform the welfare system after a revolt from Labour backbenchers led to a U-turn on planned cuts. The Labour leader pledged to main a 'safety net' for vulnerable people, but said the welfare system should not hinder those who can and want to work. He said the welfare system is 'broken' and 'failing people every day'. It still needs reform, he said, but 'we need to do it in a Labour way'. Economists warn that the U-turn, which protects existing disability and health benefits, will create a multibillion-pound hole in public finances. This financial shortfall is expected to be covered by tax rises, potentially through measures like freezing income tax thresholds.
