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ombudsman news

issue 12

December 2001

procedure

lead cases

When we receive large numbers of cases about exactly the same financial product, we may decide to identify one or more apparently typical cases as "lead cases".

By focusing initially on these lead cases, we can save a lot a duplicated effort for all concerned - and so help to expedite our conclusions. The other cases are "parked" temporarily, pending the outcome of the lead cases.

But some firms have misunderstood this procedure, and the terminology we have used. So we thought we would take this opportunity to clarify some points.

lead case or test case-

We have sometimes described lead cases we are considering as "test cases". But this term can mean a case that is referred to court for a ruling. So, from now on, we will stick to the term "lead cases".

different types of lead case

Lead cases usually arise in one of two ways:

  • We receive an apparently one-off case and start our investigation. But we then receive other, similar cases, which we keep at the pre-investigation stage pending the outcome of the first case.
  • We receive a significant number of cases, more or less simultaneously. So we select one for investigation and keep the rest at the pre-investigation stage, pending the outcome of the selected case.

more than one lead case-

It causes delay, rather than saving it, if our investigation of the lead case shows that it does not cover the main features of all the "parked" cases - so that we then have to select and investigate further lead cases.

So before we decide which case or cases to choose as lead cases, we may need to discuss the features of the cases with firms in order to ensure our selection is properly representative. But we - not the firm - will actually select the cases.

This should mean that firms will understand more clearly at the outset what is going on. And that, in turn, should lead to earlier resolution for the customer.

communicating our decisions

Once we have reached a decision on a lead case, we can turn our attention to all the other cases in the same group. We contact whichever party (firm or customer) would lose if we followed the lead case decision in their particular case. We summarise the lead case to them, and ask them to tell us how the circumstances of their case differ from the lead case (if at all).

In the light of what they say, we can decide whether the outcome of their own case should follow the lead case - or whether there are special circumstances that require separate investigation. So, each individual case still ends up being decided on the basis of its own circumstances.

no comment

Sometimes the media speculates. Sometimes one of the parties may comment publicly, perhaps putting their own "spin" on the case. But we do not comment publicly about individual cases - even to set the record straight - as that might draw us into commenting on the details, including sensitive personal and commercial information.

firms' final response letters who signs them-

The FSA rules define the contents of a firm's "final response" letter. So these letters are identified by what they say, not by who signs them. It is up to firms to ensure their final response letters are properly issued by the right people.

This marks a change from the practice of the former Banking Ombudsman Scheme and Building Societies Ombudsman Scheme, in that we no longer keep lists of those who are authorised to sign such letters. So firms should stop sending us details of authorised signatories.

what should the letters look like-

While on the subject of final response letters, it seems a good idea to remind everyone of what we prefer to see in them:

  • an apology or expression of regret.
    Whether the complaint is justified or not - the firm has an unhappy customer;
  • a summary of the complaint;
  • a summary of the outcome of the firm's investigation;
  • whether the firm acknowledges that it has been at fault in some way;
  • any offer the firm has made to settle the complaint;
  • how long that offer will remain open;
  • if appropriate, why the firm considers the complaint is outside our rules - but explaining that it is for us, not the firm, to decide this;
  • a clear statement that the letter is a final response and that customers who are dissatisfied with the final response may refer the complaint to us within six months.

Remember - the final response letter should be written in clear, plain language. If possible, it should stand alone. Firms should avoid referring to previous correspondence that may not be readily available to the customer or to us. If firms have to refer to previous correspondence, they should attach a copy.

the new rules: what do they mean for firms-

The main provisions of the Financial Services and Markets Act 2000 came into force from 1 December 2001. So the Financial Ombudsman Service is now resolving complaints against banks and building societies in its own name, rather than in the names of the Banking Ombudsman Scheme and the Building Societies Ombudsman Scheme.

Everyone had been preparing for these changes for a long time and there was much discussion about how things would operate in theory. Now we can see what happens in practice. So how will the new rules actually work, and how do they really differ from what has gone before-

This article summarises the basic framework of the new rules, and identifies some of the most significant changes.

where did the rules come from-

The Financial Services and Markets Act 2000 gave power to:

  • the Financial Services Authority (FSA), to make rules about the Financial Ombudsman Service's compulsory jurisdiction;
  • the Financial Ombudsman Service (with FSA consent), to make rules about our voluntary jurisdiction, and our procedures in both compulsory and voluntary jurisdictions;
  • HM Treasury, to make transitional provisions, by statutory instrument, about complaints concerning events before 1 December 2001.

where are the rules-

The rules are set out in the dispute-resolution (DISP) section of the FCA Handbook. There are five chapters:

  1. in-house complaint-handling by firms
  2. the scope of our compulsory jurisdiction
  3. our procedures (which are the same for both jurisdictions)
  4. our voluntary jurisdiction
  5. funding

The transitional provisions are in the Financial Services and Markets Act 2000 (Transitional Provisions) (Ombudsman Scheme and Complaints Scheme) Order 2001 (SI 2326 - 2001 ). These transitional provisions apply directly; but they are noted as "guidance" in the FCA Handbook.

what types of complaint are there-

The transitional order deals with the following complaints where the firm was a member of a predecessor scheme on 30 November 2001:

  • relevant existing complaints: "deadlocked" complaints that we were already in the process of dealing with at 1 December 2001 on behalf of a predecessor scheme;
  • relevant new complaints: "deadlocked" complaints received from 1 December 2001 onwards about events before 1 December 2001.

That leaves the rules themselves to deal with post-N2 complaints: "deadlocked" complaints about events from 1 December 2001 onwards.

jurisdiction and remedies

Broadly, for relevant existing complaints, we are required to apply:

  • the new rules about time limits (or the relevant predecessor scheme's rules about time limits if they are more generous to the complainant);
  • the remaining mandatory (but not discretionary) rules about the jurisdiction of the relevant predecessor scheme;
  • the new rules about procedure, but the relevant predecessor scheme's rules about any redress to be awarded.

Broadly, for relevant new complaints, we are required to apply:

  • the new time limits (or, before 1 December 2002, the relevant predecessor scheme's time limits if they are more generous to the complainant)
  • the new rules about whether the complainant is covered (or the relevant predecessor scheme's rules if they are more generous to the complainant)
  • the rules of the relevant predecessor scheme about whether the firm and the activity concerned are covered
  • the new rules about procedure and redress, but taking into account what redress might have been awarded under the relevant predecessor scheme

This leaves post-N2 complaints to follow the new rules in their entirety.

jurisdiction under the new rules

Jurisdiction issues are narrower than under the rules of the predecessor schemes. They are limited to whether:

  • the firm is covered
  • the activity is covered
  • the complainant is covered; and
  • the complaint is in time.

firms and activities - compulsory jurisdiction

Firms that were members of a predecessor scheme on 30 November 2001 are covered by our compulsory jurisdiction for events before 1 December 2001. The activities covered are those covered by the predecessor scheme.

Banks and building societies that are regulated by the FSA are covered by our compulsory jurisdiction for events from 1 December 2001 onwards (unless they do not do retail business). The activities covered are:

  • FSA-regulated activities (deposit-takers, insurers and investment firms);
  • lending money secured by a charge on land;
  • lending money, other than restricted/point-of-sale credit;
  • plastic cards, other than storecards;
  • ancillary banking services, eg cash machines, safe custody, sale of insurance;
  • advice and ancillary services connected with any of the above.

The relevant activity must have been conducted from an establishment in the UK, so activities in the Channel Islands and the Isle of Man are excluded.

Other firms are likely to come into our compulsory jurisdiction in future years, once they become regulated by the FSA, including:

  • credit unions
  • residential first-mortgage lenders that are not banks or building societies
  • mortgage intermediaries.

firms and activities - voluntary jurisdiction

Firms that were members of a predecessor scheme on 30 November 2001 - but which are not regulated by the FSA - are covered by our voluntary jurisdiction (if they join) for events from 1 December 2001 onwards. The activities covered are the same as those covered by the predecessor scheme.

Mortgage lenders that are not currently regulated by the FSA are covered by our voluntary jurisdiction (if they join) for complaints about events before or after 1 December 2001 - but limited to lending money secured by a charge on land, plus any ancillary advice and services.

who can complain-

A complainant must be a customer, a potential customer, or someone who has had other specific dealings with the firm - including:

  • giving a guarantee or other security;
  • relying on a cheque guarantee card as a trader;
  • being the true owner of a cheque which the firm has collected;
  • receiving a banker's reference;
  • being a beneficiary of a trust or estate where the firm is a trustee or a personal representative.

Any of these complainants can be:

  • a private individual;
  • a business with a turnover, or group turnover, under £1 million;
  • a charity with income under £1 million;
  • a trust with net assets under £1 million.

At first glance, this appears to be much like before. But there are a few changes.

  • The £1 million turnover limit applies to sole traders, partnerships and unincorporated bodies - as well as to companies.
  • The £1 million income limit for charities and the £1 million net assets limit for trusts are new.
  • The various £1 million limits are now applied as at the date on which the complaint was made to the firm.

is the complaint "in time"-

By now, everyone should be familiar with the new eight-week rule. If a firm has not resolved a complaint within eight weeks of its being raised, the customer can bring the complaint to us - even if the firm has not yet issued a final response letter (which banks used to call a "deadlock" letter).

If the firm has issued a final response letter, ordinarily the complaint must be brought to us within six months. The final response letter is required to quote this time limit.

The complaint should also be brought to us no more than six years after the event complained about. But, even if the event happened more than six years ago, the complaint can still be brought to us if the complainant could only have discovered within the last three years that there were grounds for complaint.

On the last point, note that what matters now is when the complainant knew there were grounds for complaint - not when the complainant knew of the event.

early termination

Other issues that the predecessor schemes treated as matters of jurisdiction are treated by the new rules as matters of procedure. In particular, there are various procedural grounds on which we can dismiss a complaint without considering its merits (we call this "early termination").

Paragraph 3.3 of the rules lists 17 grounds on which we may decide not to consider the complaint. The grounds include:

  • the complaint is about a firm's legitimate exercise of its commercial judgement;
  • there was no loss, material distress, or material inconvenience;
  • a reasonable offer is available from the firm;
  • the complaint has no reasonable prospect of success;
  • the matter has been dealt with, or would be better dealt with, by a court.

This is a major area of change. We may decide not to consider the complaint on one of these grounds. But that does not prevent our considering the complaint if we think we should, even if it is one the predecessor schemes could not have considered. So if we thought it appropriate, we could look into a complaint about - for example - a lending decision or the setting of interest rates.

evidence

In effect, the new rules say that we decide what evidence should be submitted to us, and how it should be presented. Our statutory right to demand information overrides any duty of confidentiality that the firm has.

The new rules allow us to accept evidence in confidence. But - and this is an important point - we decide what should and should not be kept confidential. Firms can ask us to treat items as confidential but we do not have to agree - though we are likely to do so where, for example, confidential information about a third party or security matters is involved.

any questions-

As we said at the outset, this article outlines the basic framework of the new rules, and highlights some important differences between the old and the new. But it is not a comprehensive explanation. By answering some questions, it may raise others.
Remember that advice on our rules and procedures is available from our technical advice desk:

email technical.advice@financial-ombudsman.org.uk
phone 020 7964 1400.

But remember also that it is the FSA you should contact for advice on the chapter 1 rules about in-house complaint-handling and reporting to the FSA.

Walter Merricks, chief ombudsman

For printed copies of this or any of our publications, phone 020 7964 0092 or email publications.

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.