Which? and Martin Lewis issue warning over 'catastrophic' new compensation rules

Consumer advocates, including Which? and Martin Lewis, are raising concerns over potential legislative changes that could affect how individuals seek redress from financial institutions. The debate centers on the Financial Services and Markets Bill, which includes proposed modifications to the Financial Ombudsman Service (FOS). While many people search for information on "which" financial protections are available, these groups warn that the new rules could be catastrophic for those needing to resolve disputes with service providers.

New rules for the Financial Ombudsman Service could make it harder for consumers to access free compensation.

Currently, the FOS provides a free, independent route for consumers to challenge financial services firms without the need for formal court proceedings. However, a coalition of 15 organizations—including Citizens Advice, Age UK, and StepChange—has issued a joint statement expressing alarm. They argue that the proposed reforms could introduce unnecessary complexity into the complaints process. Specifically, they fear a shift in the "level playing field," where the system might begin to presume that a firm acted correctly, rather than maintaining neutrality.

Concerns over the Financial Ombudsman Service

Rocio Concha, director of policy at Which?, stated that during a time when many households are under significant financial pressure, reforms that risk slowing down or complicating access to redress send a concerning message. The coalition worries that when large institutions commit costly errors, the burden of resolution will fall disproportionately on ordinary people.

In response to these criticisms, a spokesperson for the Treasury defended the proposed legislation. The government maintains that the reforms are intended to strengthen the Financial Ombudsman Service rather than weaken it. According to the Treasury, the changes aim to provide greater consistency and certainty for both consumers and firms, while ensuring that the ombudsman remains an independent and impartial body for resolving disputes.

Why it matters

The proposed changes represent a significant shift in how consumer complaints against financial firms are handled. If implemented, these rules could affect millions of people who rely on the ombudsman as a free, accessible alternative to the legal system for recovering losses from financial service providers.

For the general public, this means the process of seeking compensation for financial grievances may become more difficult if the current standards of impartiality and accessibility are altered. The outcome of this legislative debate will determine whether the FOS remains an effective tool for ordinary citizens to hold powerful financial institutions accountable.