Consumers Pay the Price Again: FOS Cuts Compensation Rate from 2026
The FOS Change Explained
In August 2025, the Financial Ombudsman Service (FOS) confirmed changes to how statutory interest is calculated on compensation cases. The update sets out the revised rate and explains how it applies to new and existing complaints.
Why This Matters
For many claimants, interest is not a small add-on, it can amount to thousands of pounds, particularly where fees have been mischarged over a long period. By adjusting the rate, the Ombudsman directly impacts the redress investors ultimately receive.
Why This Change Matters for Consumers
For decades, the 8% interest rate was a key feature of FOS compensation. It recognised that when consumers are left out of pocket, they deserve meaningful financial redress, not just their money back, but fair compensation for the time it was withheld.
The Impact of the New Rate
Moving to the base rate plus 1% (currently about 6.25%) could significantly reduce payouts, particularly in long-standing claims such as:
- Mis-sold car finance commission
- Unfair bank charges
- Ongoing Advice Fees
This is not just a technical adjustment. It’s a step away from the fair and consistent redress principles traditionally upheld by the UK courts.
Who Benefits from the New FOS Model?
There is growing concern that this change is the result of lobbying by major financial institutions, many of whom are under pressure following the car finance commission scandal.
Key Effects
- Banks and lenders reduce their liabilities
- Consumers receive less redress
- The burden of past misconduct is softened
Will More Claims Move to Court?
One likely consequence is that more consumers will take their cases to court, where interest calculations remain more favourable and judges can apply broader redress principles.
Challenges with Court Claims
- Court cases are more expensive and slower
- Consumers without legal support may be deterred
- Access to justice becomes unequal
The FOS was designed to be accessible, informal and consumer-friendly. If it no longer offers full and fair redress, is it still serving its purpose?
Another Blow to Consumer Confidence
This move risks becoming another erosion of consumer trust in financial complaint mechanisms. Instead of simplifying access to justice, it may entrench the idea that corporations win while consumers pay the price.
A Pattern We’ve Seen Before
- Initial reforms dressed up as “modernisation”
- Gradual weakening of consumer protections
- Systemic injustice, especially in large-scale mis-selling
What Should Consumers Do Now?
If you’ve been affected by:
- Car finance commissions
- Mis-sold financial products
- Delays in redress from your bank or lender
…you may still have options to pursue proper compensation, including through the courts, where the interest applied may reflect the true impact of your financial loss.
At Pacific Legal, we specialise in helping consumers navigate both the FOS and court-based compensation claims.
Frequently Asked Questions (FAQ)
Q: What is the new FOS compensation interest rate?
A: From 1 January 2026, it will be calculated as the Bank of England base rate plus 1%, replacing the longstanding fixed 8%.
Q: Does this mean I’ll receive less compensation?
A: Potentially yes, especially in cases where interest makes up a significant part of your total award.
Q: Can I still take my case to court?
A: Yes. Court proceedings may result in higher compensation, including more generous interest rates, depending on your case.
Need Help? Contact Pacific Legal
If you’re concerned about the impact of this change, or have an ongoing complaint with the FOS, we’re here to help.
📧 customerservice@pacificlegal.co.uk
📞 0141 2806 227
🌐 www.pacificlegal.co.uk
Nicholas Marrable is Client Engagement & Marketing Director at Pacific Legal. He specialises in making complex financial and legal issues clear and accessible for clients, with a particular focus on ongoing advice fee claims. Nicholas works closely with Levy & McRae Solicitors LLP, a Legal 500 recognised and Times Best Law Firm 2025, to ensure clients receive both accessible support and first-class legal expertise