• chairman’s statement
• chief ombudsman’s report
• chief operating officer’s review of operations
• dealing with complaints at the early stages
• resolving banking-related disputes
• resolving insurance-related disputes
• resolving investment-related disputes
• complaints prevention: education and information-sharing
  

organisation chart
the structure within the Financial Ombudsman Service

the board
board members of the Financial Ombudsman Service

our approach
Accordingly, in considering good banking practice, the banking and loans division of the Financial Ombudsman Service needs to keep in regular contact with the Banking Code Standards Board, the Mortgage Code Compliance Board and the Office of Fair Trading, as well as the FSA.

This means that, when a new type of banking complaint starts coming through to the division in significant numbers, we believe it is helpful for us to publish a briefing on the approach we are likely to take. It is an approach, not a policy, because individual cases are still decided in the light of their particular circumstances.

If banks and building societies (and their customers) know in advance the approach we are likely to take to a particular type of case, there is more chance that they will be able to resolve their differences without recourse to the ombudsman. Both sides save delay, and the bank or building society saves case fees.

We recognise that our briefing notes could lead to industry fears that the ombudsman is becoming a quasi-regulator. However, we have no power to issue regulatory guidance telling banks and building societies what they must do. We cannot monitor or discipline them. All we do is say how we will approach those cases which are not resolved by the bank or building society and which come to us for resolution. Many banks and building societies find this helpful in resolving complaints directly with their customers. And some have asked us for more briefings.

As part of this process, the work of the banking and loans division is featured in the quarterly banking and loans editions of ombudsman news – the first of which appeared in March 2001. These publications provide regular reviews of our work resolving banking complaints, and comment on themes and types of complaint.

We hope that ombudsman news will provide a prompt and helpful source of reference – and that firms will take its contents into account when considering how to handle complaints. Please contact our communications team (phone 020 7964 0092) to join our mailing list for future copies.

feedback on banking-related complaints
The first banking and loans edition of ombudsman news focused on the following areas, which were key sources of cases in relation both to banks and building societies during the year:

mortgage underfunding
This is where the lender calculated the amount of the repayment incorrectly. The borrowers paid that amount in good faith, only to discover much later that they now owed much more on their mortgage than they should have done. We consulted on a harmonised approach to compensation.

pre-1988 mortgage endowment policies
Mortgage endowment policies became legally defined as “investments” on 29 April 1988, when the Financial Services Act 1986 introduced record-keeping,“know your customer” and “suitability” requirements. Cases involving mortgage endowments sold by banks and building societies before this date are dealt with by the banking and loans division, using the rules of the Banking Ombudsman Scheme and the Building Societies Ombudsman Scheme. (Mortgage endowment complaints involving insurance companies and independent financial advisers (IFAs) are dealt with by the investment division of the Financial Ombudsman Service under the rules of the PIA Ombudsman Bureau.)

TESSAs
From August 2000 our customer contact division started to receive thousands of enquiries from customers dissatisfied with the interest rate paid on their Tax-Exempt Special Savings Accounts (TESSAs) – often comparing the rates paid on their TESSAs with the interest paid on Individual Savings Accounts (ISAs). Many complaints were settled in the light of the briefing note which we published subsequently. But test cases were required to resolve the many hundreds that remained.

downgraded deposit accounts
The Banking Code has been changed several times in an attempt to stamp out the practice of some deposit-takers slashing interest rates on obsolete deposit accounts and profiting from those savers who do not keep a check on the interest rate they are receiving. But we continue to receive a regular supply of such cases.

Membership of the Banking Ombudsman Scheme is voluntary. At 31 March 2001, 139 banks and bank subsidiaries – understood to cover more than 99% of UK banking customers – were members. A full list of members is available from our communications team (phone 020 7964 1400).

Once the Financial Services and Markets Act comes into force, membership of the Financial Ombudsman Service will become compulsory for all banks authorised to take deposits in the UK.

The preponderance of cases about mortgages reflects mortgage underfunding complaints and mortgage endowment complaints, both issues covered recently in ombudsman news. But it also reflects complaints about early repayment charges, commented on in previous Banking Ombudsman Scheme reports, which continue to be a fertile source of cases.

The substantial increase in cases about savings accounts reflects an influx of complaints about TESSAs. Fewer enquiries turned into cases than might otherwise have been expected, because a significant number of banks resolved cases themselves in the light of our briefing note. Many of the cases we actually received were ones where, on the basis of the briefing, the bank thought we would not uphold the complaint but the customer remained to be convinced.

The sharp percentage drop in cases brought by third parties reflects an apparent fall in the use of cheque guarantee cards, producing fewer complaints from traders about cheques which banks refused to pay.

A number of cases we received turned out to be outside the jurisdiction of the Banking Ombudsman Scheme. But a significant degree of assessment – and consideration of evidence – is often necessary before we can be sure this is so. Typical reasons for a case falling outside the jurisdiction of the Banking Ombudsman Scheme include the following:

	The complaint is about the legitimate exercise of a bank’s commercial judgement and there is no maladministration. So, for example, we cannot second-guess a bank’s refusal to give someone an overdraft where the bank has gone through the proper processes fairly.
	Even if it were established that the bank had made a mistake, the person complaining has not actually lost any money or incurred any material inconvenience for which we could award them compensation. We are not regulators and we have no power to fine a bank for getting something wrong.

Where a case comes within the jurisdiction of the Banking Ombudsman Scheme, it is often possible to mediate an agreed and fair settlement between the person complaining and the bank, early on in the process. This has long been a specific stage in the Banking Ombudsman Scheme’s process and is reflected in the proportion of cases resolved by mediation. This practice is to be adopted more widely by the Financial Ombudsman Service.

As at 31 March 2001, 74% of the Banking Ombudsman Scheme’s caseload was less than six months old; 21% was between six and twelve months old; and 5% was more than twelve months old.

In cases resolved after investigation by an adjudicator, or by the final decision of an ombudsman, the average compensation awarded in the year ended 31 March 2001 was £2,634. The highest amount was £64,000 and the lowest was £25.

complaints about building societies

Membership of the Building Societies Ombudsman Scheme is compulsory. At 31 March 2001, all 67 building societies were members. Once the Financial Services and Markets Act 2000 comes into force, all building societies authorised to take deposits in the UK will come under the jurisdiction of the Financial Ombudsman Service.

The building society sector contracted again when Bradford & Bingley became a bank in December 2000. Had it not been for the influx of TESSA cases (which represented 76% of the new cases in the savings account and banking category), the number of cases would have continued to decline.

Most of the TESSA cases arose because the society members who complained were unhappy that the TESSA interest rate was lower than the rate on one or other of the same society’s Individual Savings Accounts (ISAs). Most of the 558 cases involved five building societies.

Despite the guidance note issued jointly with the Banking Ombudsman Scheme, most building societies have chosen not to settle TESSA cases, preferring to await the outcome of “test cases”. These are currently at various stages in the investigation and adjudication process. One society has said it may wish to challenge the ombudsman in court, if the final decision is unfavourable to it.

The number of mortgage cases would have shown a more marked decline, had it not been for cases involving mortgage endowments. All these mortgage endowment cases related to policies sold before endowments became legally defined as “investments” and the requirements of the Financial Services Act 1986 came into force.

Few of the mortgage endowment complaints against building societies, decided so far, have resulted in the complaint being upheld. In nearly all the cases, the ombudsman was satisfied either that the society had no duty to give advice in the terms claimed by the consumer or that the information given by the society about the endowment mortgage was adequate by the standards which prevailed when the sale took place. In a number of other cases, the consumers involved were no worse off than if they had opted for a capital repayment mortgage.

The majority of the other mortgage cases comprise complaints about early repayment charges (sometimes called “redemption penalties”) and mortgage underfunding.

As at 31 March 2001, 88% of the Building Societies Ombudsman Scheme’s caseload was less than six months old; 9% was between six and twelve months old; and 3% was more than twelve months old.

The case summaries published by the Building Societies Ombudsman Scheme in earlier annual reports, which many building societies found useful as a guide to the approach the ombudsman was likely to take in particular cases, will now appear in the quarterly banking and loans editions of ombudsman news.