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technical note

time limits for mortgage endowment complaints

overview

This section of our website contains information about the time limits that apply to complaints about the sale of mortgage endowment policies.

The complaints-handling rules we follow give consumers a limited period to make a complaint to a financial business - and then to ask the ombudsman service to review the complaint if they remain unhappy.

There are time limit rules that apply to complaints generally. And since 1 February 2003, there have been rules setting out special time limits that apply only to complaints about the sale of endowment policies taken out to repay mortgages.

The mortgage endowment time limits have changed over time. Applying the rules can be complicated. But as most mortgage endowment complaints are now affected by the time limit rules, it is important for financial businesses and consumers with complaints to understand them.

time limits for complaints about the sale of mortgage endowments: the 1 June 2004 rules

The current version of the time limit rules for mortgage endowment complaints came into force on 1 June 2004. They apply to most complaints about the sale of mortgage endowments that we now receive - where the financial business wants to rely on the rule, to be able to "time bar" a complaint.

The current version of the time limit rules does not apply to complaints that were already out of time on 31 May 2004 under the rules applying at that time.

So we still need to consider the position under Financial Services Authority's (FSA) old time limit rules in some cases - usually where the consumer received a "high risk" warning letter before 31 May 2001.

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the requirement to tell consumers when time runs out

The 1 June 2004 rules introduced the requirement on businesses to tell consumers when time runs out to bring a complaint - the "final date explanation". The FSA said at the time (in its Handbook Notice 33):

We are introducing an additional requirement that a consumer must be given at least six month's notice of this final date before the time-bar can apply. This is to draw policyholder's attention to the time-bar and the need to make a complaint (if they were mis-sold) before this date if they are to lose their right to possible compensation.

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the rules - DISP 2.8.7R (formerly DISP 2.3.6R)

Provided that the consumer's complaint relates to the sale of an endowment policy taken out to repay a mortgage, and the consumer has received a "high risk" warning letter, the time for referring a complaint to us under the FCA's 1 June 2004 rules:

  • starts to run from the date the consumer received the "high risk" warning letter; and
  • ends three years from that date (known in the rules as "the final date") - so long as the consumer has also received within the three-year period (and at least six months before the final date) an explanation that time will expire at the final date.

Providing the qualifying criteria are met, these rules apply unless the ombudsman is of the opinion that - in the particular circumstances of an individual complaint - it is appropriate for the general time limits (that apply to other complaints) to apply instead.

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"high risk" warning letters

In practice, these are usually the "red" re-projection letters that policy providers send to consumers whose policies are expected to pay out less on maturity than the target amount.

"Red" re-projection letters include a warning that there is a high risk of a shortfall on maturity - and show personalised calculations of what possible amounts at maturity might be, all of which show shortfalls.

Whether or not a letter may be classed as a "high risk" warning letter depends on the content of the letter and its overall messages.

The ombudsman has decided that "amber" letters (letters that warn of a "significant risk" but show a projected surplus at the highest assumed rate of growth) and letters containing mixed messages (for example, where there is a "high risk" warning but the projections show a surplus at one or more of the assumed growth rates) do not amount to "high risk" warning letters.

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where the financial business gave an incorrect final date

When the rules were first introduced, some financial businesses miscalculated the final date - often giving the consumer a final date of exactly three years from the date of the "high risk" warning letter, rather than the date three years after the consumer received the letter.

The ombudsman considered this issue in the circumstances of a particular case [opens in PDF format] and decided that - while the financial business had made an error - its letter explaining the final date had still achieved its purpose. This meant the consumer was not "prejudiced" (adversely affected) by the error - so the financial business was entitled to object to the ombudsman considering the complaint.

However, if a financial business has shortened the three-year period by more than a few days, whether or not its objection to the ombudsman handling the case will be effective will depend on the individual circumstances.

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where the consumer surrendered the policy before receiving a "high risk" warning letter

The rules requiring the business to tell the consumer about the final date for complaining apply only to consumers who have received a "high risk" warning letter. If the consumer did not receive a letter before surrendering the policy, these rules do not apply. Whether or not the complaint is out of time depends on the general time limit rules.

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where the policy matured before the consumer received a "high risk" warning letter

As the rules requiring the business to tell the consumer about the final date for complaining apply only to consumers who have received a "high risk" warning letter, they will not apply in these circumstances. Whether or not the complaint is out of time, depends instead on the general time limit rules.

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where the policy matured before the consumer received a "high risk" warning letter

As the rules requiring the business to tell the consumer about the final date for complaining apply only to consumers who have received a "high risk" warning letter, they will not apply in these circumstances. Whether or not the complaint is out of time, depends instead on the general time limit rules.

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where the consumer surrendered the policy, or the policy matured, after the consumer received a "high risk" warning letter

As the consumer received a "high risk" warning letter, the rules requiring the business to tell the consumer about the final date for complaining will apply (unless the complaint was already out of time under the 1 February 2003 rules on 31 May 2004).

Some financial businesses have argued that the requirements on them to tell their customers about the final date for complaining should not apply when the consumer no longer has the policy. The ombudsman considered this issue in the circumstances of a particular case [opens in PDF format] but did not accept this argument.

The position for consumers who surrendered their policies - or whose policies matured - after receiving a high risk warning letter was different under FSA's old rules [opens in PDF format], which had different requirements.

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if the financial business does not want to rely on the rules to be able to "time bar" a complaint

The time limits do not apply if a financial business has not objected to our considering the complaint - on the grounds that they believe the complaint is already out of time under the rules.

We expect businesses to raise objections on time-barring grounds promptly - at the start of our investigation into the case. If an objection is raised later, whether or not it is effective will depend on the circumstances.

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late complaints - exceptional circumstances

The rules say that the ombudsman service can consider complaints made out of time, when in our view the consumer's failure to comply with the time limits was "as a result of exceptional circumstances" - for example, where the consumer has been incapacitated.

If a consumer says there were exceptional circumstances that caused them to complain out of time, we will carefully consider their comments and the detailed circumstances of the case.

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15-year long stop

Some financial businesses say we should not consider complaints made more than 15 years after the event complained about. However, the complaints-handling rules set by the regulator do not include a 15-year long stop.

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time limits for complaints about the sale of mortgage endowments: the 1 February 2003 rules

The February 2003 version of the complaints-handling rules, which still apply in some cases, allowed most consumers with a complaint about the sale of a mortgage endowment the longer of two time periods to complain:

  1. The period allowed by the general time limit rules.
  2. The period allowed by the "exception for certain mortgage endowment complaints".

To decide whether a complaint is out of time under the FSA's February 2003 time limit rules [opens in PDF format], we need to consider the complaint under both rules.

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the general time limit rules

The complaints-handling rule now at DISP 2.8.2R(2)(b) in the regulator's handbook - and previously at DISP 2.3.1R(c) - sets out the time limits which apply to complaints in general. It is sometimes called the "six and three year rule".

The effect of the rule is that (if a financial business objects to our dealing with a case on the grounds that they believe it is "time-barred"), we cannot consider a complaint made:

  • more than six years after the event complained about (usually in complaints about the sale of mortgage endowments this is the date the policy started);

or - if it gives the consumer more time -

  • more than three years from the date the consumer became aware (or should reasonably have become aware) that they had cause for complaint.

The "clock stops" for time-barring purposes when the consumer refers their complaint to the financial business (or to us) - provided that the consumer has a written acknowledgement or other record of the complaint having been received by the business.

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when should the consumer have become aware that they had cause for complaint?

For mortgage endowment complaints about the risk of the investment, this is usually the date that the consumer received a "high risk" warning letter - as these letters contain enough information to inform consumers both that they have cause for complaint and that they might expect to suffer loss as a result.

A consumer might have found out in other ways that they had cause for complaint. But the financial business has to convince us that the consumer had a similar level of knowledge to the level of knowledge they would have had as a result of getting a "high risk" warning letter.

The guidance to this rule (now DISP 2.8.6G, but originally DISP 2.3.1AG) says:

The receipt by the customer of a letter which states that there is a risk (rather than a high risk) that the policy would not at maturity, produce a sum large enough to repay the target amount is not, itself, sufficient to cause the three year time period in DISP 2.3.1 R(1)(c) to start to run.

This means it is not enough for the consumer to receive an "amber" re-projection letter (a letter projecting a surplus on maturity at the highest assumed growth rate but shortfalls at other rates).

However, a consumer whose policy actually matured with a shortfall would usually have enough information to know they had cause for complaint.

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the exception for certain mortgage endowment complaints

Under the complaints-handling rules for mortgage endowments, time starts to run when the consumer receives a "high risk" warning letter and ends six months after the consumer receives a second letter from the financial business containing the same warning (or other reminder of the need to act).

But these special rules do not apply when:

  • We decide, in the circumstances of a particular case, that the general time limits should apply without modification.
  • Where, in the particular circumstances of a complaint, the financial business can show that the three-year period allowed by the general time limit rule had started to run before the consumer received a "high risk" warning letter.

the 1 February 2003 rules in practice: Mr and Mrs A

Mr and Mrs A were advised to take out a mortgage endowment policy in 1990. They complained in February 2005. They had received "high risk" warning letters in August 2000 and in September 2002.

Under 1 February 2003 rules, they had the longer of:

  • Three years to complain from the date they knew (or should reasonably have known) they had cause for complaint.
  • Six months from the date they received a second "high risk" warning letter (or other reminder of the need to act).

Mr and Mrs A should reasonably have known they had cause for complaint in August 2000 when they received the first "high risk" warning letter. And so under the general time limit, they had until August 2003 to complain.

They received a second "high risk" warning letter in March 2003. So they had until September 2003 to complain under the special mortgage endowment rules (which apply as they allow more time in this instance).

This means that when Mr and Mrs A complained to us in February 2005, we could not consider their complaint. Mr and Mrs A were already out of time on 31 May 2004 under the February 2003 rules (which applied at that time).

Time ran out for their complaint in September 2003, and so the rules introduced on 1 June 2004 did not apply to them - even though they complained after the new rules were introduced.

where the consumer surrendered the policy before receiving a "high risk" warning letter

As the consumer did not receive a "high risk" warning letter, the time period under the special rules did not start to run. But the special rules do not apply to complaints if the financial business can show that the three-year period allowed by the general rule had already started to run before the consumer received a "high risk" warning letter.

So whether or not the complaint is out of time will depend on the general time limit rules.

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where the policy matured before the consumer received a high risk warning letter

Whether or not the complaint is out of time depends on the general time limit rules. If the policy matured with a shortfall, this would usually be sufficient to start the three-year time period.

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where the consumer surrendered the policy after receiving a "high risk" warning letter - but before receiving a second warning or other reminder of the need to act

In these cases, we are likely to decide that the general rule should apply without modification.

We are required to apply a "purposive interpretation" to the time limit provisions. The special rules were intended to provide consumers with a second warning or reminder of the need to act - if faced with a mortgage endowment shortfall.

But in cases where the consumer surrendered the policy after receiving a "high risk" warning letter, it was no longer possible for the financial business to send further letters warning of a shortfall. So in those circumstances - as the ombudsman decided in a case dealing with this issue [opens in PDF format] - we do not consider that the requirements of the special rules apply.

So whether or not the complaint is out of time will depend on the general time limits rule.

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if the financial business does not want to rely on the rules to be able to "time bar" a complaint

The time limits do not apply, if a financial business has not objected to our considering the complaint - on the grounds that they believe the complaint is "time barred" by the rules.

We expect businesses to raise objections on time-barring grounds promptly - at the start of our investigation into the case. If an objection is raised later, whether or not it is effective will depend on the circumstances.

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late complaints - exceptional circumstances

The rules say that the ombudsman service can consider complaints made out of time, when in our view the consumer's failure to comply with the time limits was "as a result of exceptional circumstances" - for example, where the consumer has been incapacitated.

If a consumer says there were exceptional circumstances which caused them to complain out of time, we will carefully consider their comments and the detailed circumstances of their case.

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help for businesses and consumer advisers

contact our technical advice desk on 020 7964 1400