Customers of banks, building societies and insurers who use commercial firms to sort out their complaints could be wasting their money according to the Chief Financial Ombudsman, Walter Merricks.

He told Moneybox that there is no need for such firms under the current complaints procedure.

Individuals can take their grievance to the ombudsman's service for free.

But over the past year, more than a dozen companies have started up.

They offer to pursue compensation claims for people who think they were miss-sold financial products.

These are often endowments used to back mortgages.

They will be paying money out which they don't have to pay out Walter Merricks, Chief Financial Ombudsman

Walter Merricks told Moneybox:

"Our job is to deal with complaints fairly and independently on the basis that people don't necessarily employ legal advisers or complaint handlers.

Our service is set up precisely to do that".

Most commercial complaints firms charge �50 pounds up front.

If they win they can take a large cut of any compensation payout in commission.

'No win no fee'

Walter Merricks says the sums people end up handing over can be substantial:

"They will be paying money out which they don't have to pay out.

Sometimes between 30% and 50% seems to be being charged"

We are coming across large numbers of complaints that are caught up in the system Chris Wright, Managing Director of Complain2us

However the firms themselves have defended their business.

Investor Complaints began trading in January 2003.

Tony Rawlins, the director, says his firm charges a maximum of 15% of commission payments when they take on a case.

"People use firms like us on a 'no win no fee' basis.

If we win the claim then, yes, we do charge a fee.

But it may be something that they wouldn't have got if we hadn't pursued it for them"

Unregulated market

Commercial complaints firms say that banks and insurance companies are taking a much harder attitude towards settling compensation claims.

They say many legitimate cases are failing because the ombudsman service is overwhelmed with applications.

Chris Wright, managing director of the Bournemouth based firm Complain2us, says companies like his are springing up precisely because the providers are being obstructive.

"We are coming across large numbers of complaints that are caught up in the system.

The insurance companies are being very picky on reasons for rejecting an initial complaint.

They are not particularly giving the customer the advice they need to understand the grounds that they have to make a complaint."

Nobody has to observe any particular standards in this area Walter Merricks, Chief Financial Ombudsman

But Chief Financial Ombudsman, Walter Merricks, is adamant that the current system, which allows people to complain for free, is the best route.

He stresses that some of these firms do not work in the customers best interest.

"There is a commercial opportunity for people to get into this market, it's an unregulated market.

Nobody has to observe any particular standards in this area.

There are dangers if you put your affairs in the hands of somebody who is not equipped and qualified to do this sort of work.

So people should therefore be cautious about who they sign up with."

BBC Radio 4's Money Box was broadcast at 1204 GMT on Saturday, 1 February, 2003.