Consultation on compensation interest levels launched by the Financial Ombudsman Service

Press release : Category

Today we opened a consultation on the interest rate applied to the compensation awarded to consumers. 

  • Were consulting on the interest applied to the awards we direct financial businesses to make.   

  • Acting on feedback from our joint Call for Input with the Financial Conduct Authority, we are seeking views on different interest rate options and proposals for implementation.  

  • The consultation will run until 2 July 2025.   

This is the first step in our response to the joint Call for Input with the Financial Conduct Authority (FCA), which sought views on how to modernise the dispute resolution system. Further proposals will be brought forward in the summer.  

If a consumer is found to have lost out because of their financial firm’s errors, we can order the business to pay compensation, plus interest.   

There are different types of interest businesses can be directed to pay, and one of these compensates consumers for being “deprived” of money – that is, not having it available to use – such as where an insurance claim has been wrongly turned down. In these cases, we can currently direct the business to pay 8% interest on top of the compensation for the period their customer was out of pocket. We can also tell a business to pay 8% interest if it doesn’t pay compensation on time.   

Feedback from the Call for Input suggested that this interest rate could be better aligned with, and reflect, market conditions. For new complaints submitted to the service, we are recommending changing the interest rate so it tracks against the Bank of England’s base (average) rate +1%. 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 consultation published today is gathering feedback on this recommendation as well as a number of other interest rate options and proposals for implementation.

James Dipple-Johnstone, Interim Chief Ombudsman said:  

The decisions made by our vital service have this year helped thousands of consumers and businesses resolve disputes in sometimes very difficult and stressful circumstances.   

We think that 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.   

We welcome feedback from stakeholders on whether our proposed new interest rate strikes the right balance between simplicity, fairness and proportionality.”   

The consultation comes as we work closely with the FCA and HM Treasury to reform the UK’s dispute resolution system. The aim is to ensure the system including the vital role we play within it is fit for the future.     

We have already begun our transformation, having become the first UK Ombudsman to introduce charges for professional representatives. The move makes our funding model fairer and encourages better due diligence from professional representatives when they refer cases.   

We have been facing increasing demand for our service in recent years. Last year we resolved over 200,000 complaints, providing an accessible alternative to the courts.  

Despite increasing demand, we announced in April that we would be maintaining the significantly lower costs for respondent businesses which were introduced in the last financial year. Case fees remain frozen at £650, and the reduced compulsory and voluntary jurisdiction levies are being maintained which, taking into account inflation, represents a saving of £70m to industry compared to pricing in 2023/24.   

The consultation will run until 2 July 2025. Further proposals to modernise the dispute resolution system and better tackle mass redress events will be brought forward in the summer.   

Latest news

Financial Ombudsman Service celebrates raising more than £30,000 for baby loss charity

22 May 2025

We have raised more than £30,000 for Sands, the UK’s leading pregnancy and baby loss charity – hitting our two-year fundraising target in just 12 months.

Press release

Read more 

Financial Ombudsman Service received over 140,000 complaints in the second half of 2024

6 May 2025

Data published today shows how many complaints we received about financial businesses in the second half of 2024.

H2 data Press release

Read more 

Financial Ombudsman Service sets ambitious targets for case resolution in 2025/26

3 April 2025

We will address significant demand and improve the efficiency of our case resolution processes, according to plans for the year ahead published today.

Plans and budget Press release

Read more