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ombudsman news

issue 74

December 2008/January 2009

a selection of recent complaints involving older customers

These case studies illustrate some recent complaints brought to the ombudsman service by older consumers. In our annual review, covering the financial year 2007/8, we noted that 14% of the consumers bringing complaints to the ombudsman service were between 55 and 64 years of age and 23% were over 65.

Recognising that older consumers may have particular financial issues and concerns, and as part of our ongoing work to raise awareness of the ombudsman service, we have embarked on a number of initiatives with these consumers in mind.

issue 74 index of case studies

  • 74/1 - whether bank should have done more to intervene when elderly customer withdrew unusually large sums of money from her account
  • 74/2 - elderly customer complains that bank turned down his application for a personal loan because of his age
  • 74/3 - customer claims refund from credit card company when his new bed fails to provide the benefits he says he was led to expect
  • 74/4 - elderly customer complains she was wrongly advised to invest in a with-profits bond
  • 74/5 - consumer approaching retirement complains about advice to place her capital in an investment bond
  • 74/6 - market value adjustment is applied to consumer's pension fund when he defers his retirement and delays converting the fund to an annuity
  • 74/7 - annual travel insurance - retired couple cancel holiday at their own expense after disclosing an illness that occurred after they booked the trip

74/01
whether bank should have done more to intervene when elderly customer withdrew unusually large sums of money from her account

Mrs D, who was 98 years old, had been a customer of the same bank for many years and was well-known to the staff at her local branch. They became concerned when she suddenly started withdrawing large sums of money from her account, at regular intervals.

Because this was so unlike the way she normally managed her affairs, the bank decided to raise the matter with her, as tactfully as possible. However, Mrs D took offence and said the bank should not be questioning what she did with her own money.

After several further large withdrawals from Mrs D's account, her bank manager contacted the police. He outlined his concerns and said the bank considered her a potentially vulnerable customer, because of her age. The police enquiry led to a Mr T receiving a prison sentence for cheating Mrs D out of her money.

Mrs D's nephew, Mr K, then complained to the bank. He said it should have intervened at a much earlier stage.

He also asked why it had failed to contact him as soon as it spotted the unusual cash withdrawals. Mrs D had told him she had arranged for him to sign cheques on her account, if necessary.

The bank explained the steps it had taken, including notifying the police. But it said it could not prevent customers from withdrawing their own money, particularly where, as in this case, the customer had insisted she knew what she was doing. The bank also noted that it had no record of any arrangement enabling Mr K to sign cheques on Mrs D's account.

Unhappy with the bank's response, and with its refusal to refund the full value of Mrs D's cash withdrawals during the period in question, Mr K brought the complaint to us.

complaint not upheld
From the bank's records, it was clear that it had been prompt in spotting the unusual activity on Mrs D's account. It had also correctly followed its procedure for handling situations involving potentially vulnerable customers.

There was no evidence that Mrs D had ever asked the bank to arrange for Mr K to sign cheques on her account. Even if such an arrangement had been in place, it would not have prevented her from continuing to withdraw funds without Mr K's knowledge.

We had much sympathy for Mrs D. However, we concluded that the bank had done everything it reasonably could do to protect her interests. The bank had no right to stop her getting access to her own money. And we could not fairly agree to Mr K's request that it should refund the money she had withdrawn from her account and given to Mr T.

74/02
elderly customer complains that bank turned down his application for a personal loan because of his age

Mr G, who was 82 years old, complained about the way his bank had handled his application for a personal loan. He had applied by phone and the bank called him back later the same day to say his application had been unsuccessful.

He said he was surprised by this and asked if his application had been turned down because of his age. However, the bank refused to comment and said it was unable to give any explanation for the decision. Mr G then wrote to the bank, again asking if he had been refused a loan because of his age.

The bank sent him a brief reply, saying his application had been assessed "in line with normal procedures", and that it was unable to reconsider its decision. Mr G then brought his complaint to us. He said the bank's refusal to answer his question seemed to indicate that he had indeed been "a victim of age discrimination".

complaint upheld in part
The bank provided evidence to show that when it assessed Mr G's application it had followed its standard procedure, in line with principles laid down in the Banking Code. Its assessment clearly demonstrated that Mr G would not be able to afford the repayments for the loan he had requested. So we accepted that the bank had not treated him differently from other applicants because of his age.

However, we thought the bank had been wrong in refusing to give Mr G an explanation, when he had asked the reason for its decision. We reminded the bank of the relevant section of the Banking Code (13.3) that tells customers:

If we cannot help you, we will explain the main reason why if you ask us to. We will give you this in writing or electronically, if you ask.

We concluded that the bank had been entitled to turn down Mr G's loan application. However, it had provided him with a poor level of service by refusing to explain its reason for doing this. We thought it unlikely that Mr G would ever have raised a complaint if the bank had provided an explanation when asked. We said it should pay him £100 for the distress and inconvenience it had caused.

74/03
customer claims refund from credit card company when his new bed fails to provide the benefits he says he was led to expect

Mr J, who was in his 70s, complained to us when he was unable to obtain a refund for a bed he had bought with his credit card.

He and his wife, who was disabled, had been thinking for some time of buying an adjustable bed. After looking at various advertisements for beds of this type, Mr J phoned the company that supplied the particular make and model he had chosen. He later told us he had expected to place an order over the phone. However, he was told that a company agent would first need to visit him and his wife at home, to help them select the most suitable bed.

Mr J said he had mentioned during the agent's visit that his wife was currently suffering from bed sores. The agent had then persuaded him to buy a bed that was "specially designed to alleviate bed sores". This bed was significantly more expensive than the one Mr J had originally intended to buy. Mr and Mrs J were very disappointed with the bed when it eventually arrived. Despite the agent's promises, the bed did nothing to alleviate Mrs J's existing bed sores, and within a week several new ones had developed.

So Mr J contacted the company that had supplied the bed. He said the bed was "not fit for the purpose for which it had been sold" and he asked for a refund. The company refused, saying the bed had not been designed to relieve bed sores, and would not have been sold for that purpose.

Mr J then contacted his credit card company. He remembered his neighbour obtaining a refund from her credit card company when her new washing machine - bought with a credit card - turned out to be faulty and the supplier would not give her a refund.

However, Mr J's credit card company told him there was no evidence that the agent had made any false claims for the bed. It also noted that the company's brochure did not make any reference to bed sores. Mr J then brought his complaint to us.

complaint upheld
We looked carefully at the circumstances surrounding Mr J's purchase of the adjustable bed. There was evidence that he had spent some time considering the different brands and types of bed on the market before making his original choice.

He had given a clear account of what happened when the agent visited him and his wife at home - and of what the agent had said about the more expensive bed. Neither the company nor its agent provided us with any statement about that home visit.

On the evidence available, we concluded it was more likely than not that the agent had misrepresented the benefits of the more expensive bed, in order to persuade Mr J to buy it. It seemed unlikely that he would otherwise have bought a bed costing so much more than the one he had originally selected.

We upheld the complaint. We said the credit card company should arrange a convenient date for the bed to be collected from Mr J's house. It should also give him a full refund and pay an additional £200 for the distress and inconvenience he had been caused.

74/04
elderly customer complains she was wrongly advised to invest in a with-profits bond

Shortly after her 80th birthday, Mrs C consulted a firm of financial advisers and was advised to place £95,000 in a bond that was invested in a with-profits fund.

Five years later, she contacted the firm to ask the exact date when her bond matured. She was dismayed to be told it did not mature on a specific date but was open-ended. She said she had thought the maturity date was imminent and she had been making plans for what she would then do with the money.

The firm told her she could surrender the bond and withdraw her money if she wished to do so. However, the value of her investment would be affected by a "market value reduction" (MVR). This was because she was withdrawing her money at what was considered to be a relatively early stage.

Mrs C then complained that she had been wrongly advised. She said she had been led to believe she had invested for a 5-year term, and had not known there was any risk that an MVR might apply.

The firm rejected her complaint. It said the bond was suitable for her needs and that she must have understood the risks, as she had worked in financial services for many years. Mrs C then brought her complaint to us.

complaint upheld
There was no justification for the firm's assertion that Mrs C's previous employment meant that she understood investment risk. She had already been retired for many years at the time she first consulted the firm. And she had worked for a general insurance company, so had no experience of regulated investment products. In any event, as she had sought financial advice from the firm, she was entitled to receive appropriate advice, regardless of what the firm assumed she might already know about investments.

On several occasions since her retirement, Mrs C had invested in three-year deposits with her building society (which had introduced her to the firm's representative). And she told us she had originally asked the firm about investing in a bond for three years. However, she had been told that five years was the minimum investment period available.

We looked at the "fact find" that the firm had completed at the time of the advice, and at the letter it had sent Mrs C, outlining why the bond was suitable for her. Neither of these documents referred to Mrs C having required an investment for a specific period of time.

However, we considered there was sufficient evidence that the bond had been sold to Mrs C on the basis that she could cash it in without charge after five years. When she contacted the firm just before the fifth anniversary of her making the investment, she had clearly thought the bond was almost at the end of its term. She had also been making firm plans about what she would do with the money over the following months.

We accepted the firm's argument that the product literature it gave Mrs C did mention MVRs and state when they would apply. But there was no evidence that the firm had considered the potential impact of these MVRs on the value of Mrs C's investment, given her age and the fact that she was unlikely to want her capital tied up for a lengthy period.

Many firms consider it good practice, in cases where the investor is elderly or otherwise vulnerable, to suggest that a family member, friend or solicitor might wish to attend the discussion with the adviser. It is, of course, entirely up to the consumer to decide whether they want to be accompanied when dealing with their financial affairs. But in this case, Mrs C was not told this was an option.

We upheld Mrs C's complaint and she accepted the firm's offer to waive the MVR, so that she was able to withdraw the full value of her investment.

74/05
consumer approaching retirement complains about advice to place her capital in an investment bond

Mrs Y was 59 when she consulted a financial adviser. She thought it likely that she would retire within a few months - but was not yet certain about that. She had a capital sum of just under £90,000 and was seeking advice on a "safe investment" that would enable her to withdraw her money at any time, if she needed it.

After meeting the adviser she invested her capital in a "personal investment plan" (a type of investment bond). A few months later, when her retirement plans were confirmed, she cancelled the plan. She was very surprised to find that the amount she got back was less than the amount she had invested.

When the firm rejected Mrs Y's complaint that she had been wrongly advised, she came to us.

complaint upheld
At the time she sought advice, Mrs Y had been expecting to retire within a few months. She was a widow with no dependants and she worked part-time on a modest salary. She had paid off her mortgage, had no debts, and held all her capital in a deposit account. She told us that when she met the adviser she had stressed that she needed easy access to her capital. She had also said she was not prepared to take any risks with her money, as she would need it after she retired.

The personal investment plan was invested in relatively low-risk funds. However, it still had the potential for capital loss, as Mrs Y had discovered. And placing so much in a single medium- to long-term investment did not seem to us to represent well-balanced financial planning, in view of Mrs Y's personal circumstances.

The firm attempted to defend its advice. It said Mrs Y would have been fully aware of the nature of her investment from the outset, as it had given her a detailed brochure about the personal investment plan. We told the firm it could not fulfil its responsibility for providing a client with suitable advice by simply handing her a brochure.

We were satisfied, from the evidence, that if she had not received the unsuitable investment advice, Mrs Y would probably have kept her money in a savings account at her bank. So we said the firm should restore her capital and add interest for the period it was invested, at the same rate she would have obtained if the money had been in her bank's savings account.

74/06
market value adjustment is applied to consumer's pension fund when he defers his retirement and delays converting the fund to an annuity

A few months before he reached the age of 65, Mr A consulted a firm of financial advisers about his retirement plans and pension options. As a result, he decided to leave his pension fund invested, rather than converting it into an annuity and starting to draw a pension income.

Annuity rates were not particularly good at that time, and as he was able to continue working beyond his 65th birthday (his normal retirement date), he felt he could afford to delay obtaining an annuity for a while.

A year later, Mr A decided to retire. When his pension fund was converted into an annuity he discovered that a "market value reduction" (MVR) had been applied. He was told the reason for this was that the transaction was taking place at a later time than his normal retirement date.

After complaining unsuccessfully to the adviser, Mr A came to us. He said he had never been told his pension fund might be reduced because of an MVR, if he delayed his retirement.

complaint upheld
The firm had a duty to make Mr A aware of all the relevant facts, so that he could make an informed decision. In this instance, we considered it crucial that the firm considered the benefits and drawbacks of Mr A's not converting his pension fund into an annuity at his normal retirement date.

However, the firm insisted that it had not been necessary to do this. It said Mr A had not consulted it about converting his fund into an annuity at the age of 65.

We noted that Mr A had made it clear to the firm from the outset that he wished it to review his financial circumstances and advise him on retirement planning.

The firm had recorded, in its report of the meeting, that it was "not crucial" for Mr A to convert his pension to an annuity when he reached his normal retirement age. However, there was no evidence that Mr A had gone to the meeting with the intention of deferring his benefits beyond that date. We were satisfied that he decided to do so because of the advice he was given.

In common with most pension fund contracts, Mr A's contract stated that no MVR would apply if he converted the pension benefits into an annuity at his normal retirement age. By not purchasing an annuity at that time, Mr A faced two risks. An MVR might apply at any time after his normal retirement date, and there was no guarantee that annuity rates would have improved by the time he decided to convert his fund to an annuity.

The firm had not mentioned these risks in its report and we did not see how it could have advised Mr A properly without taking these factors into account.

We noted that the amount of Mr A's annual pension, after deduction of the tax-free cash sum, was very marginally smaller (by a matter of pence) than it would have been if he had not deferred buying his annuity. But he had still lost out on one year's pension payment and on the use of this money during that year. We required the firm to pay Mr A an amount equal to a year's pension. We said it should also add a small sum to compensate him for the distress and inconvenience he had been caused.

74/07
annual travel insurance - retired couple cancel holiday at their own expense after disclosing an illness that occurred after they booked the trip

In September 2007, Mr and Mrs K booked a trip to the Seychelles for early in the New Year, to celebrate Mr K's retirement. Unfortunately, Mr K suffered a stroke a few weeks after making the booking. This appeared to be relatively minor and the couple had every expectation that he would be well enough to travel by the time of their trip.

At the beginning of November, the couple received the renewal notice for their annual travel insurance policy. This asked for details of any changes in their health since the policy was last renewed. Mr K provided information about his recent stroke. The insurer then said it would add an exclusion clause to the new policy, stating that he would not be covered for any claims arising "directly or indirectly from that stroke".

Mr and Mrs K told the insurer this was unfair. They said they felt uneasy about travelling without cover for any health problems related to the stroke. And they said the insurer was punishing them for being honest.

In its response, the insurer stressed that it was important for all policyholders to provide accurate information in answer to its questions about their health. Failure to do this could lead to claims being refused. It said it had been entitled to add the exclusion clause to Mr and Mrs K's policy, and that it would only continue to provide them with cover on that basis.

Mr and Mrs K were unhappy about the situation they found themselves in. And they felt they had no option but to cancel their trip, at their own expense, when their doctor said that in view of Mr K's stroke, this might not be the best time to travel. The couple then complained to us. They said the insurer had acted unreasonably in adding the exclusion clause to the policy and forcing them into the position where they felt obliged to cancel their holiday.

complaint upheld in part
We said the insurer had made a legitimate commercial decision in excluding cover for Mr K, in relation to his change in health. But in the circumstances of this case, we thought it should have given the couple the opportunity to cancel the trip and claim under their existing policy, which did not include the exclusion. We therefore said that the insurer should reimburse Mr and Mrs K for the costs of cancelling their holiday.

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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.