Seek out the ombudsmen to help fend off those ‘financial bullies’

Conal Gregory hands out some practical advice on where to turn when you need to make a financial complaint.

Sadly in this imperfect world, financial arrangements can go wrong, often appallingly wrong, and individuals can feel powerless against the corporate might of a major provider.

Fortunately, over the years the balance has been redressed and the financial bully brought partly to heel. Whilst some continue to place new product development ahead of customer service, an increasing number of financial providers and administrators recognise there are merits in resolving problems quickly.

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Much of the success in this field results from the activity of independent ‘ombudsmen’ who can investigate problems and seek solutions with the ability to obtain compensation.

The term ‘ombudsman’ originated in Denmark and Sweden to signify a “grievance man”, meaning an official who is appointed to investigate complaints against an administration. In the UK, it acquired initial significance with the Parliamentary version.

The Financial Ombudsman Service (FOS for short) is the best known (0300 123 9123). Set up under the Financial Services and Markets Act 2000, it handles complaints across a wide range of money matters from insurance and mortgages to credit and investments.

There are several separate specialist ombudsmen including:

Pensions 020 7630 2200

• Energy 0330 440 1624

• Legal 0300 555 0333

• Local Government (council services including council tax) 0300 061 0614.

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Before the FOS can be involved, the consumer needs to work through any complaints procedure offered by the business concerned. Keep a full correspondence trail, whether electronic or postal.

The FOS says any firm needs up to eight weeks to respond before it can become involved. An amazingly high 37 per cent of businesses fail to send a final response within this time.

The FOS charges businesses £500 per case (after three complementary per year). Regardless of the outcome, there is no refund. It is therefore amazing that more firms do not resolve matters without incurring a referral. They could be magnanimous and retain customer goodwill by acting quickly and, when wrong, generously.

The FOS is independent and impartial. It aims to hear both sides and weigh up the facts. The service is free to consumers. By age, 14 per cent were 25-34 years, 22 per cent 35-44 years, 24 per cent 45-54 years, 17 per cent 55-65 years and 20 per cent over 65.

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The demographic profile of complainants has changed in the last year with a notable rise from three to 10 per cent for ‘DE’ (unskilled) – typically restaurant, bar and hotel workers .

The decision does not have to be accepted. You are free to go to court but if an ombudsman’s decision is accepted, it is binding on both sides.

It does not fine financial firms who break rules. That is the role of the regulator, such as the FSA or OFT. It can order compensation up to £150,000 (or £100,000 for complaints received pre-January 1, 2012).

Last year the FOS handled over 5,000 initial enquiries and complaints each working day. Around one in five turned into a formal dispute requiring the involvement of their adjudicators and ombudsmen – a record 264,375 new cases last year, up 28 per cent on the previous year.

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Most of the rise (60 per cent of new cases) related to the sale of payment protection insurance (PPI). This sharp increase followed the judicial review brought by the banks which found in favour of the FSA and FOS in April last year.

Investment-related complaints fell four per cent and banking cases declined one per cent. Other insurance-related but non-PPI rose an alarming 31 per cent.

Just four firms accounted for over half the cases handled: Lloyds TSB, Barclays, MBNA and The Royal Bank of Scotland. The first and last were bailed out by the Government which now owns approximately 40.2 and 84 per cent respectively.

By business, the most troublesome sectors were banks (65.5 per cent), general insurance intermediaries (9.5 per cent), general insurers (8 per cent) and life insurance and investment product providers (5 per cent).

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A record 222,333 cases were resolved, which resulted in compensation in 64 per cent of complaints. This is markedly up on 51 per cent upheld the previous year. The level of compensation meant that 23 per cent received up to £1,000, 30 per cent up to £25,000 and five per cent up to £100,000. In most other cases, businesses were asked to take action (such as correcting a credit reference) or given a formula for compensation.

Over the last decade, three issues have caused mass claims: mortgage endowments, bank and credit card charges and PPI.

In the past year, insurance complaints other than PPI arose notably from critical illness (up 55 per cent), buildings (up 31 per cent), motor (up 26 per cent) and contents (up 23 per cent).

The FOS says: “It is disappointing when insurers continue to pursue cases to the final stage – requesting final decisions from an ombud sman – in areas where our approach is well known and clearly set out.”

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Banking and credit complaints accounted for 24 per cent of new cases. Credit cards account for 30 per cent.

Mortgage complaints increased by over a third, notably involving administrative errors. On the plus side, fewer complaints arose regarding savings accounts.

Whilst two-thirds of disputes were resolved within six months, a worrying14 per cent were not resolved within 12 months.

It is a large budgetary operation, costing £108m to run with 1,700 staff. The FOS has more than doubled the number of ombudsmen employed. Its unit cost has fallen from £639 to £484. Yet the cost of settling disputes has risen 214 per cent in real terms since 2001.

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The impact of harder times – with family finances and job security coming under more pressure than ever – means “it’s likely that the need for our service will only increase”, says FOS chief ombudsman, Natalie Ceeney.

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