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ombudsman news

issue 125

May/June 2015

broking and middlemen

Whether or not they’ve really thought about it, many people have used some sort of “middleman” to buy a financial product - for example choosing an insurance policy or taking out a loan.

On the one hand, tools like price comparison websites can give consumers more choice - as people are able to compare products easily to find a better deal. However, both the regulator and consumer groups have highlighted that people aren’t always aware of how these websites actually work. And last year the Financial Conduct Authority (FCA) warned that consumers weren’t always being given appropriate information to make an informed decision about what to buy.

This is reflected in the complaints we see involving comparison websites - which often centre on how information was presented. In particular, consumers contact us after insurance claims have been rejected - saying that terms, conditions or other “small print” weren’t made clear.

We take the same general approach to complaints about online services as we do to complaints about more “traditional” ones - like face-to-face or over the phone. Our approach to complaints about how insurance was sold is well-established - and published on our website. In the complaints we see, we check whether the consumer was given clear information - as well as checking that any questions were clear.

If someone has used a price comparison website, we’ll generally look at a complaint about the business providing the product - which is usually responsible for the information these sites provide on their behalf.

In any customer relationship, good communication is key to avoiding problems. Unfortunately, sometimes the use of scripts in selling insurance can make interactions with customers feel bureaucratic and robotic. So we encourage businesses to focus on having clear, human conversations - which go a long way in reducing the likelihood of important information being “lost in translation”.

Over the last year we’ve seen a significant increase in the number of complaints about credit-broking services for short-term loans. People aren’t always aware they’ve used a “middleman” - and in some cases we find that the website in question didn’t make it clear enough that it wasn’t providing the credit.

We also hear from people who’ve been charged a fee by a credit broker - or several fees - but haven’t received a loan. In these cases, we need to establish whether the fees were made clear when the customer applied for a loan. If not, then we usually tell the broker to refund the fees.

We also tell the business to pay compensation for any upset and inconvenience caused by a wrongly-charged fee. Given that some people with short-term loans are already in financial difficulties, money taken unexpectedly can have a significant impact on their wider situation.

Disappointingly, some credit brokers can be unresponsive in the face of problems - both with their customer and with us. If this is the case, we reach an answer based on the information we have available. As we explain in our recently published annual review, since the FCA took over the regulation of consumer credit businesses in April 2014, some credit brokers have left the market.

index of case studies

  • 125/1 - consumer complains that credit broker has taken fee without providing a loan
  • 125/2 - consumer complains after broker's fee makes her bank account overdrawn
  • 125/3 - consumer complains that insurer has "voided" insurance policy because of non-disclosure
  • 125/4 - consumer complains after broker charges extra fees for cancelling her motor insurance policy
  • 125/5 - consumer complains after claim is rejected - saying broker didn't inform them of changes to policy
  • 125/6 - consumer complains after travel insurer rejects cancellation claim when husband falls ill
  • 125/7 - consumer complains that insurer has unfairly voided policy because of undisclosed convictions

consumer complains that credit broker has taken fee without providing a loan

Mr O’s boiler had been playing up for months - but when it finally broke down he had to have it repaired. When the engineer’s bill turned out to be more than he’d expected, he decided to take out a small loan to cover some of the costs.

Mr O filled in an enquiry form on a credit-broking website, asking to borrow £300. The website said the company would respond to all queries within 24 hours. When Mr O hadn’t heard anything after several days, he checked his bank statement online - and saw that the credit broker had taken £79 from his account.

Mr O didn’t understand why money had been taken when he hadn’t had a loan - and he emailed the credit broker to ask for it back. When he didn’t get a reply, Mr O went to his local bank. He asked if, since he hadn’t authorised the payment, they could help him get back the £79.

The bank said they would try to reclaim the money through “chargeback”. A few days later they said the credit broker had “defended” the chargeback, saying the £79 was their fee. The bank told Mr O they couldn’t do any more.

Feeling he’d been scammed - and worried about paying his bills - Mr O asked for our help.

complaint upheld

We needed to establish whether Mr O could have known about the credit broker’s £79 fee when he enquired about the loan - and whether he’d authorised it to be taken from his account.

The credit broker said their records showed that Mr O had ticked online to say he’d read their terms and conditions - which mentioned the fee. However, they couldn’t provide any evidence about this - or a copy of the terms and conditions.

Mr O sent us the emails he’d sent the credit broker - and the bank statement showing the disputed transaction. It was clear he’d emailed the credit broker immediately after realising that money had been taken from his account.

On balance, we thought it was likely that Mr O hadn’t seen the terms and conditions - and hadn’t known that he would be charged a fee. So we told the credit broker to refund the fee they’d taken, paying 8% interest on it. We also told them to pay Mr O £100 to make up for the unnecessary worry they’d caused him.

consumer complains after broker's fee makes her bank account overdrawn

Miss M hadn’t been given as many hours work as she’d hoped over the last month. Realising she’d struggle to cover some of her bills, she decided to take out a small loan.

Miss M searched online and found a website that offered a loan within two hours. She filled in a short form online, giving her bank details as instructed.

When Miss M checked her bank balance the next morning, there was no sign of the loan in her account. But looking at her recent transactions, she found two separate payments had been taken from her account by a company she didn’t recognise with “loan” in its name.

Miss M looked up the name online and found a phone number. Although she couldn’t get through to anyone, she was able to leave a message. When she hadn’t heard anything by the next day, she sent the company an email. But she still couldn’t seem to get a response.

By this point, Miss M’s bank account was further in the red. Worried about her bills and confused about what she’d been charged for, she phoned us to talk things through.

complaint upheld

Miss M was confused about what she’d been charged for. We explained that, in our experience, it isn’t always obvious whether a website is run by a loan company - who will provide a loan themselves - or whether it belongs to a broker, who for a fee, will search for a suitable loan.

It seemed that Miss M applied for a loan through a credit broker. When we checked the website that Miss M had used, we found that it said “99% of loans” were approved - but there was no mention that any fees would apply.

Miss M’s bank statements showed that she hadn’t received a loan - but £50 had been taken from her account. It was clear to us that Miss M hadn’t had any idea she’d be charged - as she’d immediately tried to sort things out when she’d noticed the fees. And she hadn’t authorised the credit broker to take any money.

In light of what we’d seen, we told the credit broker to refund Miss M the money they’d taken from her account -paying 8% interest on it. We also told them to pay her £150 to recognise the stress they’d caused - and the fact they hadn’t responded to her concerns.

consumer complains that insurer has "voided" insurance policy because of non-disclosure

Mr N drove a mini-cab. When his insurance came up for renewal, he took out a policy through someone recommended by a friend, who was also a cab driver.

A few months later, Mr N was involved in a minor accident with a car. He was held responsible - and the third party made a claim against his insurer.

Mr N’s insurance broker got in touch to explain that there was a problem. The policy hadn’t been intended for business use and apparently Mr N hadn’t said that the vehicle would be used for his work as a cab driver. The broker also said that Mr N hadn’t disclosed claims made against him in the past.

Because of this, the insurer said they wouldn’t pay the claim. They also said they wouldn’t have offered cover at all if they’d known Mr N’s car was used for work. And as he’d “deliberately withheld information”, they would be “cancelling the policy from inception”, keeping any premiums that Mr N had paid and asking him to pay the third party costs.

Because Mr N’s first language wasn’t English, his daughter, Miss N, helped him manage his business and paperwork. Miss N contacted the broker to say that they must have made a mistake, as she was sure Mr N would have said he needed business cover. She was also unhappy that it seemed Mr N was being accused of lying about his previous claims.

Not getting any answers and upset with the broker, Miss N asked us to step in to help her father sort things out.

complaint resolved

Mr N had filled in an application form over the phone with the broker. To establish what exactly had been said, we asked the broker for a recording of the phone call.

Listening to this, we heard Mr N mentioned his job several times - and when asked about his occupation, he’d said he was a “self-employed mini-cab driver”.

However, it was clear to us that, at several points, Mr N hadn’t understood what the broker was saying - or had to ask the broker to repeat things. There was also a significant amount of background noise, making the broker’s voice very faint. Listening to the call, we felt the combination of these things made the conversation about previous claims difficult to follow - and we didn’t think that he had been deliberately trying to withhold information.

When we raised our concerns with the broker about the quality of the call he accepted the scope for confusion. He apologised - and offered Mr N £150 to make up for the upset caused by his mistake. We thought this was fair - and also suggested that the broker write a letter for future insurers to explain that it wasn’t Mr N’s fault the policy had been voided.

We then checked the insurer’s underwriting policy. This said that they wouldn’t offer cover for vehicles used for work - so we agreed that they had the right to “void” Mr N’s policy. However, the insurer told us that, having reviewed the claim during our involvement, they would refund Mr N’s premiums - as they agreed that his “non-disclosure” wasn’t deliberate.

The insurer also told us that, in the circumstances, they and the broker would arrange to settle any outstanding costs from the third-party claim.

consumer complains after broker charges extra fees for cancelling her motor insurance policy

After moving further into the city centre, Ms K decided to sell her car - so she needed to cancel her car insurance.

She’d taken out the policy through a broker - so she phoned the broker’s office to cancel it. She was told that they’d sort out the cancellation and get back in touch to let her know exactly how much money she would be refunded.

But when Ms K next heard from the broker, she was surprised to be told that she owed the broker around £80 in “commission fees” - on top of the insurer’s cancellation fee and other charges. So she would be getting back far less of her premiums than she’d expected.

Ms K told the broker that when she took out the policy, she’d been told that the cancellation fee would be £25. But the broker explained that this was just the insurer’s cancellation fee. The broker said their own terms and conditions had stated that a “commission fee of up to 20%” would be taken off any refunded premiums - as well as a £50 cancellation fee.

Ms K made a complaint. She said that she’d only seen the insurer’s terms and conditions which mentioned a £25 cancellation fee - and she hadn’t been made aware of the broker’s charges.

In response, the broker said that they’d made their terms and conditions clear - and that Ms K couldn’t have taken out the policy without agreeing to them. They said that if Ms K didn’t pay up, they’d pass her account to debt collectors.

At this point - upset about the charges, and very worried about her “debt” - Ms K asked us to step in.

complaint resolved

We asked Ms K how she’d taken out the policy. She said that she’d filled in the form online - and remembered reading about the £25 cancellation fee in the “key facts” document she was emailed. She said that some of the attachments she was sent wouldn’t open properly - but she couldn’t now find the email to send us.

When we spoke to the broker, they explained that Ms K had found the policy on a price comparison website, and had been directed to the broker’s own website to finalise things. They sent us screenshots to show what Ms K would have had to tick, to say she’d read the broker’s terms and conditions before buying the policy.

The broker also sent us a recording of the follow-up phone call that they had made to Ms K. Listening to this, we found that the broker had listed the various fees that would apply if the policy was cancelled.

We also established that Ms K had set up a credit agreement to take out an upfront loan to pay for her insurance. The broker had explained that the interest on the loan wasn’t refundable - and that the insurer would apply a non-refundable “set up fee” in relation to the loan. This was part of the reason why Ms K’s premium refund was so much less than she’d expected.

It wasn’t clear why Ms K hadn’t been able to open all the email attachments - which might have given detail about the costs involved. But all the same, there had been a lot of separate charges to take into account - and we appreciated why Ms K was confused.

The interest that Ms K had paid on the loan to pay for her insurance, and the insurer’s “set up fee”, weren’t in the broker’s control.

However, we told the broker that, in our view, it wasn’t fair that Ms K was being asked to pay twice to cancel her policy. We also felt that the broker should have given a clearer indication of the “commission fee” that would apply - rather than just an “up to 20%” estimate.

And we pointed out that immediately raising the prospect of debt collectors - rather than taking the time to listen to Ms K - hadn’t been a constructive approach to the problem.

The broker said that, on reflection, they would only charge the £25 Ms K had been expecting. We - and Ms K - agreed that this felt fair in the circumstances.

consumer complains after claim is rejected - saying broker didn't inform them of changes to policy

Mr and Mrs C had originally taken out their home insurance through a local broker. When their policy had come up for renewal, they had agreed with the broker to stay with the same insurer.

A couple of months later - following some bad weather - part of Mr and Mrs C’s roof collapsed and some water leaked into the garage. Unfortunately, this seriously damaged Mr and Mrs C’s guitars and record collection - which they had been storing in the garage while they did some decorating.

Mrs C phoned the home insurance company to make a claim for the damaged items. But the insurer said they wouldn’t pay the claim because Mr and Mrs C’s policy didn’t cover accidental damage following “escape of water”.

When Mr and Mrs C questioned this decision, the insurer told them that when they’d first taken out the policy, the type of damage they were claiming for would have been covered. But the insurer had since reviewed the policy terms and conditions - and had notified customers that accidental damage caused by “escape of water” was now excluded from cover.

Mr and Mrs C complained to the broker. They said that they were very surprised and concerned that they weren’t covered. They explained that they wouldn’t have taken out a policy without cover for water damage. They were adamant because they had had to pay out a lot of money for this very reason in the past when they hadn’t been covered. .They also said they distinctly remembered being told, when they renewed their policy, that the cover hadn’t changed.

The broker replied saying that they’d sent Mr and Mrs C all the documentation relating to their insurance renewal and the new exclusion - and didn’t feel they’d done anything wrong. Frustrated, Mr and Mrs C asked us to step in.

complaint upheld

We needed to establish what information Mr and Mrs C had received about the change in cover. The broker sent us the documents they’d received from the insurer - which they said would have been passed on to Mr and Mrs C. Among these documents was a “notice to policyholders”, explaining that accidental damage caused by “escape of water” was now excluded.

Mr and Mrs C told us they hadn’t received the notice alongside the other renewal documents - and that if they had, they wouldn’t have renewed their policy. While the broker showed us records that a pack of documents had been sent to Mr and Mrs C, we couldn’t say for sure that the notice had been included.

However, we noticed that the covering letter to the documents didn’t mention the “notice to policyholders”. We felt that, even if the notice had been part of the set of documents Mr and Mrs C were sent, such a significant change in cover should have been clearly highlighted to them.

We asked the broker for recordings of any phone calls that they’d had with the couple. Listening to these, we found that the broker had reassured Mrs C that the renewed policy would have “full accidental damage cover on the buildings and contents”. When Mrs C had double-checked, she was told by the broker “We haven’t changed anything at all”.

It was clear that this type of cover was very important to Mr and Mrs C - given that they’d been caught out in the past. In light of the fact that the new, significant exclusion hadn’t been highlighted to them - and that they’d been given incorrect information - we didn’t think it was fair for their claim to be turned down.

In the circumstances, we told the broker to arrange for the claim to be paid as if the right cover had been in place. We also told them to pay Mr and Mrs C £150 for the upset and inconvenience caused by their mistake.

consumer complains after travel insurer rejects cancellation claim when husband falls ill

The week before Mr and Mrs A were due to go on holiday to the Canary Islands, Mr A ended up in hospital with a kidney infection. He was too ill to fly, so Mrs A made arrangements to cancel their trip - including contacting their travel insurer to claim back the cost of the holiday.

The insurer accepted the claim and said they’d be in touch when they’d calculated the amount Mr and Mrs A were due to be refunded. When they heard back from the insurer, Mr and Mrs A were surprised to see the insurer had charged more than double the excess they’d expected.

Mrs A queried this with the insurer. She explained that she’d taken out the insurance policy through a comparison website. And part of the reason she’d chosen this particular policy was because she’d thought the excess was low - at £75 in total. So she couldn’t understand why the insurer had charged so much.

The insurer told Mrs A that the right excess - £150 per person - would have been shown on the screen before she selected and bought the policy. They said it would also have been in the “key facts” and policy documents that she would have received by email after buying it.

But Mr and Mrs A felt they’d been misled - and asked us to look into their complaint.

complaint not upheld

We asked the insurer for a screenshot of what the couple would have seen on the website, and copies of the cover letter and “key facts” documents that they would have received afterwards.

The insurer couldn’t provide a website screenshot showing the policy Mr and Mrs A had bought, because the policy was no longer available. But they sent us a screenshot from a different policy showing how the web page would have looked - and we thought the level of the excess was clearly displayed.

We also looked at the email that Mr and Mrs A were sent after they bought the policy. We found that the £150 excess was clearly referred to at the top of the table of benefits.

And under the heading “key information”, it was clear that it would be deducted for each person - which we know, from the complaints we see, is standard in most travel insurance policies.

When we pointed this out to Mrs A, she told us she’d looked at several different policies on the comparison site before selecting one. In light of this, we thought it was likely that she’d got mixed up when comparing lots of information online - and was either remembering the excess from a different policy, or had overlooked the fact that it was charged per person.

We explained to Mrs A that, given everything we’d seen, we didn’t think the insurer had acted unfairly.

consumer complains that insurer has unfairly voided policy because of undisclosed convictions

Mr J was a landscape gardener - and relied on his car to drive between jobs. One day, his car was stolen while he was parked outside a customer’s house. Mr J filed a police report - and then phoned his insurer to tell them what had happened.

A couple of days later, the insurer phoned Mr J back to say they wouldn’t deal with his claim. The insurer told Mr J that while doing their routine background checks, they’d found that he had two convictions that he hadn’t told them about. They pointed out that Mr J had ticked “no” to the question about whether he had any “non-motoring convictions” when he’d filled out the application form on a price comparison website.

They said, in the circumstances, they were also going to “void” his policy - and keep the premiums he’d already paid.

Mr J accepted that his company had previously been fined for breaking trading rules. But he argued that the conviction wasn’t relevant, as it wasn’t against him personally - which was why he hadn’t ticked “yes”.

However, the insurer argued that Mr J should have disclosed the convictions - and wouldn’t change their position. Mr J didn’t feel this was fair, so he complained to us.

complaint not upheld

We asked Mr J to send us any documents he had from the court proceedings. Looking at these carefully, we found that the convictions in question had in fact been against him, not his company.

The insurer sent us a screenshot of the application form Mr J had filled out on the price comparison website. This showed that three clear questions had been asked about different types of convictions. And it seemed that Mr J had ticked “no” to all of them.

The comparison website also had “helpful tips” alongside all its questions - to explain what sorts of things were relevant. So we thought it would have been clear to Mr J what he needed to disclose. The court date had been just five weeks before Mr J had taken out the policy, so it seemed unlikely that the conviction would have just slipped his mind.

Because the insurer had said they were going to “void” the policy, we needed to check that they wouldn’t have agreed to insure Mr J’s car if they’d known about his convictions. The insurer sent us a copy of their underwriting policy, which showed that this was the case.

We explained to Mr J that, in light of everything we’d seen, we felt that he should have known he needed to disclose his convictions. So we thought the insurer had acted fairly.

image: 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.