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ombudsman news

issue 50

November/December 2005

time bars and mortgage endowment complaints

We are continuing to receive a significant number of queries from both firms and consumers about how the time bar rules apply to mortgage endowment complaints.

Consumers often say the firm has treated them unfairly if it tells them it will object to our considering the merits of their complaint because the complaint is time-barred. When this happens, we explain the rules about time limits and check that the firm has applied those rules correctly. We also look to see if the consumer can point to exceptional circumstances that prevented them from complaining within the time limit. If we are satisfied that their failure to comply with the time limit was the result of exceptional circumstances, we can consider the complaint.

Since June 2004, firms have been required to set out a final date for consumers. If a consumer does not complain to the firm by this date, the firm can object to our considering the complaint, if it is referred to us.

This new rule sets the time limit at three years from the firm’s first warning to the consumer (in what has become known in the industry as a "red" letter) about the high risk of a shortfall, provided that the consumer also received – within the three-year period and at least six months before the final date – an explanation that the time limit will expire at the final date.

The new rule applies only to cases that were not already out of time on 31 May 2004. That means many consumers continue to be subject to a time bar without having received any prior notice of a deadline. These consumers often find the rules difficult to understand. They frequently question whether the firm can restrict their access to the ombudsman service in this way.

In our experience, clear and complete explanations in the firm’s final decision letters can help minimise the number of complaints about time limits that are referred to us.

If the firm

  • attaches to its final decision letter copies of any relevant documents (in particular, copies of the letters that the firm has relied on in reaching its view on the time limit); and
  • includes a clear statement that it objects to our consideration of the case;

then it will normally be apparent – when the case is referred to us – whether it has been correctly time-barred.

As the following case studies illustrate, it is often not apparent that the case has been correctly time-barred and we need to investigate further. Firms should be aware that if we need to make enquiries with them and/or their customer to confirm the position, the case becomes chargeable and a case fee will be raised.

case studies

time bars and mortgage endowment complaints

50/6
firm says complaint made "out of time" – consumer claims to have registered dissatisfaction within time limit

In January 2001, and again in November 2002, the firm sent Mr and Mrs D a red re-projection letter. These letters warned of a high risk that the couple’s mortgage endowment policy would not produce enough, when it matured, to pay off their mortgage.

The couple had until January 2004 – three years after they received the first "red" letter – to raise a complaint. But it was not until April 2004 – two months after that time limit had expired – that they wrote to the firm complaining about the policy. The firm rejected the complaint. It also said it did not wish us to consider the merits of the complaint because it had been made "‘out of time". The couple then came to us.

complaint dismissed
Mr and Mrs D said they had "expressed dissatisfaction" about their policy at a meeting with the firm in July 2003 – well within the time limit. They told us that the firm had advised them at this meeting to "wait and see" rather than going ahead with the complaint at that stage.

The firm was unable to produce any record of the meeting. But in a letter it sent the couple in August 2003 it referred to a July 2003 meeting "to discuss the possibility of a re-mortgage". The letter put forward various options. But it did not indicate that the couple had raised any complaint. Nor did it suggest that they should wait before complaining.

When they referred their complaint to the firm in April 2004, Mr and Mrs D didn’t mention the meeting or any earlier complaint. We did not think it possible to safely conclude that the couple had raised their complaint at a meeting with the firm in 2003. We dismissed the complaint.

50/7
firm disagrees that consumer’s delay in complaining was caused by exceptional circumstances

Mr Y received "red" re-projection letters from the firm in November 2000 and August 2003. These warned of the high risk that his mortgage endowment policy would not produce enough – when it matured – to pay off his mortgage.

Mr Y complained to the firm in March 2004. The firm issued its final response letter in April 2004. It rejected his complaint because it was made outside the time limits. It also said it would object to our considering the matter if he referred it to us.

Mr Y did not respond to the firm but he did refer the matter to us. We wrote to him, explaining that unless the delay had been caused by exceptional circumstances, the firm could correctly time-bar the complaint.

Mr Y wrote back to us with his reasons for the delay in referring the complaint. We asked the firm to review these reasons but it said it didn’t think Mr Y’s circumstances were sufficient to waive the time bar. Our adjudicator then wrote to the firm, expressing the view that Mr Y’s delay was caused by exceptional circumstances. The firm disagreed and asked for an ombudsman’s decision.

complaint upheld
Mr Y said he had been unable to complain to the firm within the time limit because he and his family had suffered the following serious health problems.

  • In January 2001, after a series of miscarriages, his wife gave birth to a son. Mrs Y had needed constant medical attention throughout her pregnancy and for some months after the birth. The child spent his first six months in a special baby care unit and was still seriously ill.
  • In December 2001 Mr Y was diagnosed with throat cancer. He had surgery a month later and continued to receive medical treatment for the cancer until August 2003.
  • In October 2003 Mr Y suffered a nervous breakdown. He was unable to return to work until late February 2004. He complained to the firm just a few weeks later, in March 2004.

The ombudsman told the firm he was satisfied that Mr Y’s delay in complaining was a result of these exceptional circumstances. Mr Y ’s problems had started shortly after the firm had issued its first ‘red’ letter, and they did not end until after the deadline had expired. He had complained to the firm soon after he was well enough to return to work.

50/8
consumer challenges firm’s decision that her complaint was "out of time" – saying she never received its warning letters

In September 2000 and June 2003, the firm sent Mrs J "red" letters warning of the high risk of a shortfall. When she complained to the firm, in April 2004, it rejected her complaint. It said it would object to our considering the matter because her final date for complaining had been December 2003.

Mrs J contacted us. She said she was certain she had never received either of the warning letters that the firm claimed to have sent her. She told us she had only realised there was a problem in March 2004 when she asked the firm about the performance of her policy. She had complained the following month.

complaint upheld
We established that the firm had sent its ‘red’ warning letters to Mrs J at Flat 11, 150 Main Road. Mrs J lives at Flat 1/1 and Royal Mail told us there is no Flat 11.

We accepted there was a possibility that Mrs J had received the letters. But we were not persuaded that it was likely she had done so. We thought it entirely possible that the letters were delivered to another flat, or not at all. We concluded that Mrs J’s complaint was not time-barred.

50/9
firm says the time limit "clock" started before it sent a "red" letter

Mr O bought a mortgage endowment policy in June 1991. In May 2004 he complained to the firm, saying he had not been made aware of the risks associated with endowment policies. He said the firm had led him to believe the policy would easily produce enough to repay his mortgage and leave him with an additional lump sum.

The firm told him it considered the complaint to be time-barred. It said it believed Mr O had been fully aware of the risks presented by his policy when he bought it in 1991. He had therefore had six years – until June 1997 – in which to make a complaint that could be referred to the ombudsman. Unhappy with this explanation, Mr O came to us.

complaint dismissed
We discovered that Mr O had worked as a financial adviser with the firm from August 1987 until June 1993. During 1989 and 1990 he undertook intensive training that covered all the firm’s endowment products. And at the end of this training, Mr O had taken and passed a series of formal tests. Some six months later, Mr O sold the endowment policy to himself.

We agreed with the firm that Mr O should have been aware of the risks of the policy when he sold it to himself in 1991. We told Mr O the firm had acted correctly in time-barring his complaint.

Walter Merricks, chief ombudsman

ombudsman news issue 50 [PDF format]

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.