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ombudsman service publishes annual review of personal finance disputes

26 June 2001

The Financial Ombudsman Service has today published its annual review for the year ended 31 March 2001.

The review includes reports and statistics from the various ombudsmen and complaints-handling schemes which now operate jointly as the Financial Ombudsman Service - providing a single port of call for consumers with unresolved personal finance complaints.

During the year, the new single ombudsman service:

  • handled over 400,000 enquiries - with more than 1,000 phone calls a day from consumers (a 50% annual increase);
  • investigated over 30,000 disputes (a 25% annual increase);
  • received triple the number of complaints about mortgage endowments; double the number of complaints about savings accounts (mostly complaints about interest paid on TESSAs); and a 13% decrease in complaints about motor, buildings and contents insurance;
  • resolved eight out of every ten cases without the need for a formal ombudsman "determination" (the majority of complaints are resolved by mediation and recommended settlements).

Summing up a challenging first year of full operations at the new single ombudsman service, chairman Andreas Whittam Smith said:

The unchanging background to our activities has been a steady rise in the number of complaints which consumers are bringing to us. This has meant that creating the new service has been a bit like putting up a building in a gale. Every part of the structure has to be robust.
I am pleased that everything we set out to do last year was achieved. However, finding ways to operate effectively is a never-ending process. This year we have set ourselves new targets for improving service standards and reducing our unit costs."

Reflecting on the experience of dealing with mortgage endowment complaints, chief ombudsman, Walter Merricks, points to some of the underlying causes - exaggerated sales talk, limited contractual commitments, and staff incentivised with generous bonuses to sell endowments. The result, he says, has been:

... a debacle involving millions of pounds in compensation, and an immeasurable toll of anxiety, distress and loss of confidence among the purchasers of financial services.

Questioning whether the financial services industry could not have predicted that an explosion of complaints was inevitable, Walter Merricks asks:

Are there other combinations of poor sales practices, opaque products and market factors which are liable to generate similar surges in complaints, and of which industry professionals are already aware? Or can we be sure there are no more skeletons lurking in the cupboard?

Drawing lessons from consumers' problems over the year, Walter Merricks also highlighted the growing potential for customer confusion. He said:

One feature of the brand-driven retail market is the practice of firms selling financial products under brands or labels other than their own. But consumers inevitably become confused as to who is responsible.

Contrasting the financial area with other consumer protection law, he points out that a supermarket that re-brands coffee to sell to consumers has to accept responsibility if the coffee is sub-standard:

The supermarket cannot tell the consumer to complain to the firm that manufactured the coffee. Retailers cannot evade responsibility by using slippery and opaque agency arrangements. Financial firms likewise should accept responsibility for the performance of the products they sell.

Looking ahead, Walter Merricks commented on how the new complaints-handling rules - which will be in force by the end of the year - are likely to affect the experience of consumers with financial complaints:

Across the range of firms covered by the Financial Ombudsman Service, the standard of complaints-handling varies greatly. Some firms could be characterised as pragmatic and positive, while others are legalistic and defensive. Complaints-handling standards relate directly to resources and attitude, both of which are determined by senior management. The complaints we see sometimes reveal handling by firms which is far from exemplary. We look forward to the real impact that the new regulatory environment - with its emphasis on the quality of systems and management supervision - should make on the complaint experience of consumers.

notes for editors

  1. The Financial Ombudsman Service has brought together eight complaints-handling schemes - including the Banking and Building Societies Ombudsman schemes, the Insurance Ombudsman Bureau and the Personal Investment Authority Ombudsman Bureau - to form a new single organisation for resolving consumers' personal finance disputes.
  2. Set up by law under the Financial Services and Markets Act 2000, the Financial Ombudsman Service provides a single port of call for consumers with personal finance complaints - from household insurance and pension plans to bank accounts and stocks and shares. The Financial Ombudsman Service can help if consumers are unable to resolve complaints with their bank, building society, financial adviser, insurance company, investment firm, stockbroker or unit trust company.
  3. The Financial Ombudsman Service will get its full legal powers and a single set of rules at "N2" - the date (expected by November 2001) when the Financial Services and Markets Act 2000 comes into force. Until then, the service handles complaints on behalf of - and using the rules of - the separate ombudsman and complaints-handling schemes, whose annual reports are included in the consolidated annual review published today.
    Case studies, including detailed technical commentary and feedback, are now published separately on a monthly basis in ombudsman news. Copies of ombudsman news are available on www.financial-ombudsman.org.uk.

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