mortgage endowment complaints - time limit changes

In an earlier edition of ombudsman news, we noted that the Financial Services Authority (FSA) had introduced rule changes relating to the time limits for consumers wishing to refer mortgage endowment complaints to us.

In essence, these changes mean that firms must now warn mortgage endowment customers that there is a time limit and a ‘final date’ for making a complaint – and that once this ‘final date’ has passed, the complaint becomes ‘time-barred’.

This article sets out:

	how we are interpreting these rule changes; and
	how we now regard complaints made to us during the periods affected by the changes.

We also address some of the concerns that have been expressed to us about this complicated area of our work.

It might be helpful if we first set out the starting point for the time limit rules. Our jurisdiction for considering a complaint is determined by the Dispute Resolution Rules (DISP Rules) laid down by the FSA in its Handbook. The time limits for referring a complaint to us are set out at DISP Rule 2.3.1. This states (at DISP Rule 2.3.1R(1)(c)) that:‘The Ombudsman cannot consider a complaint if the complainant refers it to the Financial Ombudsman Service …

(c) more than six years after the event complained of or (if later) more than three years from the date on which he became aware (or ought reasonably to have become aware) that he had cause for complaint, unless he has referred the complaint to the firm or VJ participant or the Ombudsman within that period and has written acknowledgement or some other record of the complaint having been received.’

The new rules apply where the complainant’s time for referring the complaint to the Ombudsman had not expired on or before 31 May 2004 (under the rules as they stood at the time), or had not begun to run before that date.

To ascertain whether the complaint could have been considered on 31 May 2004, we need first to apply the 'old' rules. If the complaint is time-barred under the 'old' rules, it remains so and is not brought into time by these changes.

The new rules are an exception to DISP 2.3.1R (1)(c), (the ‘six and three year rule’ above). In essence, this rule says that the complaint must be brought three years from when the complainant knew, or ought reasonably to have known, that they had cause for complaint.

The three-year time limit for referring the complaint to us starts to run from the date the complainant first receives a letter or equivalent (usually from the product provider) warning them that their policy will only be on track to meet its target maturity value if – from the date of the letter until the policy matures – it achieves a growth rate of over 8% per annum. This letter is usually referred to as a ‘red’ re-projection letter.

Under the new rules, the time period still ends three years from that date, (on a date now called ‘the final date’). But under the new rules, that ‘final date’ only takes effect when the complainant has also received – (within the 3 year period, and at least six months before the final date) – an explanation that the time within which their complaint can be referred to us will expire on a specified ‘final date’ [DISP2.3.6R (1) (a) & (b) and (2)].

Under DISP 2.3.6R (3), if notification of the ‘final date’ is either:

	incorrect; or
	sent late, so that the complainant receives it more than 2½ years after receiving the first ‘red’ letter (or its equivalent);

then the time for referring a complaint continues to run until a (later) ‘end’ date is specified in an explanation sent to the complainant. This later date must not be less than 6 months after the date on which the notice is sent.

Transitional provisions are in place for complaints where the three-year period from the date when the complainant receives the first ‘red’ letter (or its equivalent) expires on or before 30 November 2004. In these cases, the explanation must stipulate a final date, which must not be less than two months from the date on which the complainant is likely to receive the explanation.

It is important to note that the rules do not require the firm against which the complaint has been made to send the customer the warning about the ‘final date’. It is envisaged that, in most cases, the product provider will send the warning in its re-projection letter. However, this does not prevent an independent adviser, who sold the policy, from relying on a ‘final date’ given to the complainant by the product provider, as long as that ‘final date’ is correct.

The two main exceptions to this new time limit are if:

	the Ombudsman Service is of the opinion that, in the circumstances of the case, it is appropriate for the six-year/three year rule in DISP 2.3.1R (1)(c) to apply, (for example, because a previous policy review letter was issued with an individual projection, a forecast shortfall and an encouragement to the customer to take action). [2.3.6R (5)]; or
	the complainant’s failure to comply with the time limits in DISP 2.3.6R was the result of exceptional circumstances. [DISP 2.3.1R (2)].

And, as before, the time limit has effect only if the firm formally objects to our considering the complaint [DISP 2.3.1R (2)]. We always ask a firm to confirm to us – within 21 days of our converting a complaint into a ‘case’ – whether it wishes to raise any objections, on jurisdiction grounds, to our considering the case.

The rules must be applied strictly where time bars are concerned, and, as already noted, there are only very limited circumstances where we can look at a case that falls outside of the time bars.

When considering cases where the time bar might apply, we examine all the facts of the individual case very carefully. In particular, before we time-bar a case:

	the firm concerned will have made a formal objection to our considering the merits of the case (If a firm does not raise the issue of a time bar we cannot apply it);
	in the light of that objection, we will have made sure that, because the time limits that apply to endowment mortgage cases have not been met, the case falls outside our jurisdiction; and
	we will be satisfied, on the basis of all the information available to us, that we have seen no evidence of the sort of exceptional circumstances that might be sufficient for us to waive the time limits.

The FSA has required firms to write to all endowment policyholders telling them how their policies are progressing. These review letters must contain certain information and, in particular, must say whether or not the policy is ‘on track’ to meet its target amount. These letters are described as ‘green’, ‘amber’ or ‘red’, depending on how likely it is that the policy will meet its target. The firm will send ‘red’ letters if it considers it very likely that a policy will fail to meet its target amount unless it grows by more than 8% in the future.

‘Red’ letters contain strong recommendations to the consumer to take action, and are deemed to put the consumer in a position where they ‘know or ought to know’ that the policy may fail to do what they want it to do and pay off their mortgages.

Some firms representing complainants have said that they do not think that these letters are sufficient to ‘start the clock running’ for time bar purposes. However, DISP Rule 2.3.6R states clearly that the time for referring a complaint to the Financial Ombudsman Service starts to run when a complainant receives a ‘red’ letter and that these rules apply where they are more advantageous to the complainant than the application of the normal time limit rules at R2.3.1