Changes to compensation interest rates levels awarded to consumers - have the Financial Ombudsman Service made entitlement to compensation even more difficult?

For nearly 25 years, FOS have followed the same guidance from the Courts with applying statutory interest of up to 8% in addition to compensation that a consumer has lost. This has been mainly calculated from the date the consumer suffered harm, up until the date the compensation is awarded.

With FOS announcing their plans to implement a new rate which will track the Bank of England’s base (average)rate +1% from 1 January 2026, this is a significant blow for consumers who are trying to recover compensation for the harm and deprivation they have suffered over the years. The new rate will cut the compensation that consumers are entitled to into almost half, which will now drive the increase in cases proceeding through the courts, leaving the options for having a complaint pursued with FOS or the Financial Conduct Authority’s (‘FCA’) financial redress scheme being made redundant.

The timing of this announcement being released before the Supreme Court’s judgment in Johnson v FirstRand Bank Limited (London Branch) t/a MotoNovo Finance [2024] EWCA Civ 1282 (which is expected to be handed down later this month), followed then 6 weeks after by the FCA’s announcement on their proposal to implement a possible financial redress scheme, is like another roadblock for the consumer to overcome.

The court system is already overwhelmed due to the lack of resources – including the reduction of judicial availability to hear a backlog of cases. With poor offers that could be made to the consumer by FOS and possibility that the FCA’s financial redress scheme could be influenced by FOS’ announcement, it seems that this could all follow in the same path as the PPI scandal, which everyone (including FOS) has been trying to avoid.

The amount of compensation that was offered to consumers in the PPI financial redress scheme from January 2011 up-until 29 August 2019 was not enough, and the majority of these cases have ended up going down the court process to try and obtain a fair and proportionate award – which neither FOS nor the redress scheme failed to offer. These cases are still being heard in the courts to this day.

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