If a consumer has lost out as a result of a mistake, there may be different types of compensation to consider. The information on this page is intended to help financial businesses understand our approach.
Usually, we’ll tell you to put the customer back in the position they’d be in if things hadn’t gone wrong.
That can mean awarding money – for example, paying an insurance claim, or refunding a charge. But we may also tell you to do something that doesn’t involve money such as correcting information on a credit file, or reinstating a no-claims discount.
And in some cases, we’ll award compensation for non-financial loss – for example, for the upset an issue has caused your customer.
Types of compensation we can award
The Financial Conduct Authority (FCA) Dispute Resolution Rules say that we can make an award of such amount that is considered fair compensation for any or all of the following types of awards:
- money awards
- awards for distress and inconvenience
- interest awards
- costs awards
When a customer has lost out financially, we usually tell the business to compensate them for the loss it caused. This can be any amount of money up to our award limit.
Different limits apply depending on when the case was brought to us:
- £350,000 for complaints about acts or omissions by firms on or after 1 April 2019
- £160,000 for complaints about acts or omissions by firms before 1 April 2019, and which are referred to our service after that date
For complaints referred to us before 1 April 2019, our previous award limits apply
- £150,000 for any complaints referred to us before 1 April 2019
Where it’s clear how much your customer lost, we’ll specify the amount of money you need to pay.
Where it’s not clear we’ll usually set out the basis on which your business should compensate a customer, rather than a specific amount. For example, if someone was mis-sold PPI on their credit card, we might ask you to work out how much they’d owe if they hadn’t had the insurance.
In cases where we think a customer is due more than the limit, we’ll recommend the additional amount we think you should pay. But we’ll talk to you both about what this means at the time.
A mistake can affect your customer practically or emotionally, as well as financially. So we can also award fair compensation for any of the following:
- pain and suffering
- damage to reputation
We might award these if we feel your customer faced obstacles or difficulties that could have been avoided if you’d handled things differently.
Examples of awards for distress and inconvenience
Moderate (less than £500)
A customer had to contact you repeatedly to get something quite basic sorted out. For example, their address wasn’t updated when it should have been, or paperwork containing their personal information was shared with a third party by mistake. This may have caused the customer frustration and inconvenience.
Substantial (£500 to £2,000)
Mistakes made by your business led to a county court judgement being incorrectly registered against your customer, which meant their mortgage application was rejected. This might have caused them considerable embarrassment, upset and inconvenience.
Severe (£2,000 to £5,000)
You underpaid your customer's pension for a significant amount of time, meaning they experienced reduced living standards. This is likely to have caused considerable long-term distress and embarrassment.
Extreme (£5,000 or more)
Your customer made plans to sell their home and relocate for work and your business decided to withdraw their mortgage offer. But you didn’t tell them until it was too late to change their plans, when there was an opportunity to tell them sooner. Given the significant changes they were making personally and professionally, this would have had an extreme and long-term impact on the customer.
We might tell you to pay interest on top of (or as part of) any payment we recommend. Interest on an award is usually calculated from the date the customer should have had the money until the date it was actually paid.
We can award interest in three ways:
- As part of the award itself. For example, we might tell you to refund interest you’ve charged your customer on their mortgage if they were incorrectly paying a higher amount.
- On top of a financial award. For example, if your customer was ‘deprived’ of money – meaning they didn’t have it available to use – we can tell you to pay interest on top of the money award.
- After the financial award has been calculated. For example, if there’s an unreasonable delay in settling a complaint following an ombudsman’s decision. We can decide that 8% simple interest should start to accrue until the award is paid.
In most cases, we think a rate of 8% simple per year is appropriate to reflect the cost of being deprived of money in the past. We wouldn’t normally use the current rates paid on deposit accounts as a benchmark. This is because the rates of interest customers have to pay in order to borrow are usually much higher.
8% is also the same interest rate that the courts would normally award. This rate takes into account that:
- the rate is gross before tax is deducted
- it often applies to losses at times when different base rates applied
- current interest rates charged on overdrafts and loans may not have reduced in line with the base rate
In some cases, we can use a different rate if we think it’s fair to do so. For example, if we think the money your customer was deprived of might have been used to pay a credit card bill, we might use the higher interest rate they were charged instead.
Most customers will have to pay basic rate income tax.
Occasionally, we might tell a business to reimburse some or all of the costs your customer reasonably incurred. Costs awards aren’t common, but we need to think about what’s fair in each individual case.
Costs awards can also include interest.
We might decide your business needs to put things right in a way that doesn’t involve paying money. For example, amending someone's credit file.
Sometimes we’ll recommend that you follow a formula to work out the right amount of money to pay your customer.
This might be because the calculations involve information we don’t have, but is on your own systems or available from a third party, such as an actuary.
As an example, where we think you gave your customer unsuitable investment advice, we might tell you to compare the value of the actual investment with a suitable one that was available at the time.
Or, we might ask you to re-work an account – for example if your customer has been charged an interest rate that is too high and they incurred additional charges or costs.
Where we tell you the basis on which to pay compensation, we don’t check the details of the calculations you subsequently carry out. We’ll always explain the principle behind the calculation to customers so that they can understand what’s involved.
How compensation is paid
In most cases, you should pay the compensation amount we tell you directly to your customer.
But this isn’t always appropriate. For example, if the customer owes a debt to your business, we might say it’s reasonable to offset any compensation against the debt. We only do this where we think the complaint has been fairly addressed by doing so.
Consumer redress schemes
Where there has been widespread regulatory failings by a business, the FCA may require the business to enter a consumer redress scheme. This will include a set of rules that the business has to follow when compensating its customers for a specific issue.
If there’s a redress scheme in place, we’ll usually be bound by the rules for that particular scheme. However, this only affects complaints that are within the scope of the consumer redress scheme, so we’ll deal with any other complaints about your business as normal.