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ombudsman news

issue 91

December 2010 / January 2011

ombudsman focus:
myths and truths about the ombudsman service

Over nine out of ten businesses we cover don't actually have complaints referred to us by their customers. As these businesses have little or no direct contact with us, many tend to rely on what they hear about us from others - rather than asking us direct. This means that myths can circulate which may be several steps removed from the reality.

Here are some of the myths we hear most often about the ombudsman service - and the answers, straight from the horse's mouth.

myth

The ombudsman is a "quasi" regulator.

truth

The Financial Ombudsman Service isn't any more of a regulator than the courts are. We are part of the statutory arrangements designed to underpin consumer confidence in financial services. But we don't fine or discipline firms - as a regulator can. And unlike a regulator, our role is to resolve individual disputes - as a quicker and more informal alternative to the courts.

myth

The ombudsman is a consumer champion.

truth

Research shows that many consumers struggle with officialdom - and find formal procedures challenging and off-putting. This is why we aim to make our process as easy and straightforward as possible - and more accessible and user-friendly than the courts.

But making it easier for people to tell us their side of the story - without feeling confused or intimidated - doesn't make us a consumer champion. We're just as concerned to reduce hurdles for smaller businesses - who also tell us that they want as little "red tape" and "bureaucracy" as possible.

Like the courts, the ombudsman service is entirely neutral in deciding cases. The evidence for this can be seen in the complaints uphold-rates that we publish. In the last quarter these rates ranged between 84% and 4% in favour of consumers, depending on the financial product involved (see ombudsman news issue 90 - Nov-Dec 2010).

myth

The ombudsman was imposed on the financial services industry.

truth

The financial services industry itself invented the concept of the ombudsman for the financial sector - through the industry-created Insurance Ombudsman (established in 1981) and the industry-created Banking Ombudsman (established in 1986).

Credit is due to those industry figures who - back then - recognised that consumers were more likely to have confidence in the industry, and to do business with it, if they were guaranteed redress if something went wrong.

myth

The ombudsman's powers have grown unfettered over the years.

truth

The defining features of the Financial Ombudsman Service today are exactly the same as they were thirty years ago - when they were first agreed by the industry for the Insurance Ombudsman. These well-established features are that we:

  • are an independent service, free to consumers;
  • resolve disputes informally on the basis of what is "fair and reasonable" in each individual case;
  • can tell a business to pay up to £100,000 to put things right for an individual customer.

myth

The ombudsman ignores the law by using "fairness" to decide complaints.

truth

It is the law itself, laid down by parliament, that requires the ombudsman to decide cases on the basis of "fairness" - while complying with the Human Rights Act.

The principle of "fairness" lies at the heart of modern consumer-protection legislation applied in the courts - including the Unfair Contract Terms Act, the Unfair Terms in Consumer Contracts Regulations and the "unfair relationships" test in the Consumer Credit Act 2006.

Most of the complaints we handle turn on disputes about what actually happened - or on the application of general legal principles. In most cases, our approach is based on what the courts would be likely to do in similar circumstances. But in some areas, the standards that the industry has voluntarily imposed on itself (through its codes of practice) exceed the law's requirement.

myth

The ombudsman's approach lacks transparency.

truth

Every year we issue literally hundreds of thousands of decisions, views, opinions and adjudications - sent directly to the individual businesses and consumers whose complaints we settle. So our approach in each case is open and transparent to the parties involved - but not to anyone else.

Some argue this is "justice behind closed doors" - while others say that settling complaints out of the glare of publicity is what makes private dispute resolution so effective. After thirty years of not publishing ombudsman decisions for all to see, we are keen for a debate on this subject. Should we make every decision publicly available- And where does "privacy" fit into the transparency debate-

Meanwhile, we continue to set out our procedures and general approach to resolving different types of complaints in a wide range of publications, all available on our website (named "website of the year" by the Plain English Campaign last year, following nominations from the public).

The website includes our online technical resource - with technical notes, case studies and further reading on everything from caravan insurance to spread-betting. The FAQs section of our website also answers the hundred or so questions we are most frequently asked by businesses.

We publish case studies and articles monthly in ombudsman news. And we take part in roadshows, seminars, conferences and other events across the UK - to meet financial services practitioners face-to-face and answer their queries.

Businesses can also contact our dedicated technical advice desk for free advice. The technical advice desk (phone 020 7964 1400) handles 20,000 calls a year from industry practitioners - and deals with technical queries across the whole range of financial products and disputes we cover.

We understand that a specific complaint may be the first of its kind for the business dealing with it. However, given the breadth of our experience and the extent of our remit, we see few complaints where we haven't already dealt with similar issues before.

So we are keen to talk about our well-established approach to most types of complaint - and to refer to information already available on our website. But should we be publishing more - and if so, what and how-

myth

The ombudsman uses hindsight to apply today's standards to yesterday's events.

truth

Our rules require the ombudsmen to take account of the law, regulators' rules, and industry good practice as at the time of the events concerned. We recognise, for example, that the FSA's ICOBS rules were preceded by GISC standards, which were in turn preceded by ABI codes.

myth

The way the ombudsman is funded is unfair - and consumers should have to pay.

truth

All ombudsman schemes in the UK - from the Parliamentary Ombudsman to the Prisons and Probation Ombudsman - are free to consumers. And this was a defining feature of the ombudsman schemes established by the financial services industry itself back in the 1980s - and the model on which we are based.

80% of our funding currently comes from case fees, so it is based on the number of complaints businesses actually have with us. At £500, these case fees are much less than a business would have to spend if their customers pursued legal action through the courts, rather than bringing their complaint to us to settle.

The first three cases that a business has each year are "free". So over 95% of the businesses we cover don't pay any case fees.

The case fee is payable whatever the outcome of the case. If we charged a case fee only if we upheld a case, the fee would have to be much bigger in order to cover all our other costs. And it might then look like we had a financial incentive to uphold complaints.

Where we don't uphold a case, it doesn't automatically mean the consumer was wrong to have complained. We see many cases where a clear, helpful and sympathetic explanation by the business - rather than a defensive and legalistic response - would have resolved misunderstandings and prevented the complaint in the first place.

And it doesn't automatically mean that a case has no merit - or that it should be considered "frivolous and vexatious" - if a consumer pursues their complaint in an unfocused way that a business may think unreasonable. Last year (2009/10) we concluded that only 0.4% of our total caseload could be categorised as "frivolous and vexatious" (0.1% in the year before that).

image of ombudsman news

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.