Ombudsman’s role in helping the public battle the ‘Goliaths’
BATTLING MONEY problems with apparently inflexible financial behemoths can sometimes feel like David taking on the Philistine giant Goliath as recounted by the Hebrew prophet Samuel.
Financial providers and servers can appear enticing and friendly when soliciting custom but reveal their adamantine character if a problem arises. The asymmetry is not balanced.
To redress this difficulty, the Financial Ombudsman (or FO) was created by Parliament in 2001. Its powers are defined in the Financial Services & Markets Act 2000. Since it was formed, over 3.8m complaints have been resolved.
It is designed as an informal alternative to taking legal action. There is no need to make a case in person or instruct anyone to act on your behalf. There is no cross-examination. “Fairness is at the heart of all we do,” declares the FO.
The service is free to consumers and funded by the financial industry. Only one in 10 firms pays a file fee which arises when more than 25 cases have to be investigated. The charge then is £650 a case but eight companies have so many complaints that they share a negotiated sum out of £131m: Aviva, Barclays, Direct Line, HSBC, Lloyds, Nationwide, Royal Bank of Scotland and Santander.
Each year the FO is contacted by over one million people. Last year this led to 271,468 new complaints. The process starts with a review by a case handler who shares their initial thoughts on both sides. They explain which points are most relevant.
If the complainant is not happy with the decision, a formal review by an Ombudsman can be requested. Last year 295,596 cases were resolved of which just over 10 per cent (29,746) were decided by an Ombudsman.
Consumers can withdraw from the process at any stage and if they do not accept the decision, they can take the dispute to court.
The FO needs to be contacted within six months of receiving a firm’s final response. Events arising over six years ago are inadmissible unless a complaint was made within three years of the customer becoming aware.
The aim is to answer complaints within 90 days but the volume can sometimes make this difficult. An unprecedented number – over 1.3m – complained about Payment Protection Insurance (PPI).
If a consumer has lost out financially, the FO looks to have them put back to the position they would be if no mistake had been made. The business must comply and may also be asked to pay compensation, costs and interest.
The FO is led by barrister Caroline Wayman who previously worked in the insurance industry. She joined in 2000 and was appointed Chief Ombudsman six years ago.
The FO found in favour of 32 per cent complaints, up from 28 per cent the previous year. Its highest uphold rates were for:
■ Guarantor loans 89 per cent, up from 32 per cent
■ Home credit 84 per cent, up from 39 per cent
■ Payday loans 70 per cent, up from 53 per cent
■ Unit trusts 44 per cent, up from 25 per cent.
Wayman says: “Some businesses still need to put fairness first in how they handle customer complaints. A key part of our work in the future will be to proactively prevent companies (and) stop unfairness arising in the first place.”
There are 480 ombudsmen. Besides Wayman, there are two Principals (accredited commercial mediator Richard Thompson and Garry Wilkinson, a former IFA), 10 lead and 467 others.
The FO will not reveal how many hold financial or legal qualifications which is curious in view of past whistleblower comments that staff without such a background were handling cases.
The range of disputes runs from current accounts to pawnbroking. Fewer complaints arising from IT glitches occurred last year, meaning the overall volume fell. However, the number falling victim to banking fraud and scams is still worrying at nearly 11,000 despite the introduction in May 2019 of a voluntary code offering protection for victims of ‘authorised push payment’ (APP) fraud.
The FO recognises the difficulty in balancing security with maintaining convenience but says firms are not doing enough to prevent fraud or are
FIGHTING FOR FAIRNESS:
relying too heavily on generic warnings.
Cancelled flights and holiday bookings saw a marked increase in cases, many arising after Thomas Cook and Flybe went into administration.
In insurance, where there was a 30 per cent uphold rate, 32,637 new complaints were received, led by motor cover.
The FO rightly stresses the risk of misrepresentation when not giving the right information can leave someone underinsured and significantly out of pocket when a claim is not covered.
Home insurance still gives rise to disputes. Buildings cover cases (6,205) and contents (1,711) were resolved. However, health insurance had fewer problems with 3,834 resolved.
In general insurance, home emergencies (1,872), term assurance (1,832) and pet and livestock cover (1,348) saw the largest volume completed.
Self-invested personal pensions (SIPP) remained the largest disputed area among investments and pensions with the FO resolving 3,396. Problems accessing investment platforms resulted in some cases affecting income payments or pension withdrawals.
The high-profile open-ended Woodford equity fund attracted problems which included disputes over inciting to invest as well as about the fund itself. Noncash ISAs numbering 792 were resolved as well as 212 unit-lined investment bonds and 119 withprofits bonds.
Fewer complaints about independent financial advisers were received and the uphold rate fell.
The FO completed 561 stockbroking cases, 300 on derivatives including spread betting and 1,273 whole of life policies and savings endowments. Investment-based crowdfunding files in just 47 cases were concluded.
The past year was the first time the FO could consider claims management companies as complaints were formally handled by the Legal Ombudsman. The key themes were fees, delays and communication.
In banking and credit, the FO finished 124,783 cases of which almost half were consumer credit products and services. The most significant files completed were for payday loans (33,123), instalment loans (11,917), hire purchase (6,672) and point-ofsale loans (3,946). Catalogue shopping (1,604), home credit (1,468) and debt collecting (1,121) were also significant.
As a non-regulated area, cryptocurrency like bitcoin falls outside the FO’s remit although it can investigate if it forms part of a financial adviser’s recommendation. This applies similarly to investments in stamps and wine.
Credit cards were still high (11,379) with notable large numbers concluded for current accounts (22,040) and packaged bank accounts (6,554). House mortgages (7,045) were resolved.
Among other banking services, the FO concluded large numbers on debit/cash cards (1,592), electronic money (1,414) and interbank transfers (1,472). Overdraft and unsecured loan disputes (5,239) were finished as were deposit/savings accounts (1,244).