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ombudsman news

issue 128

September 2015

ombudsman focus: complaints from smaller businesses

Thinking about financial "agony aunt" columns - and other money features in the media - problems encountered by smaller businesses generally receive less attention than those raised by individual customers. Where businesses' experiences come to the fore, it's often in the context of more controversial issues like the selling of interest rate "swaps".

But in the same way as individual customers, smaller businesses rely on financial services providers, for example, to help them meet both their essential daily expenses and ongoing, long-term commitments. So while we see small numbers of complaints about higher-profile, complex financial products, the majority of problems that smaller businesses refer to us involve everyday services such as business banking, insurance and loans.

In this ombudsman focus, we look at the complaints we receive from smaller businesses - and the lessons that can be learnt from the problems we’re asked to resolve.

which businesses can use the ombudsman service?

We can look into complaints made by “micro-enterprises” - an EU term meaning businesses with an annual turnover of up to 2 million euros and fewer than ten employees.

what smaller businesses complain about %
banking complaints 70
insurance complaints (excluding PPI) 17
investment complaints 7
payment protection insurance 6
Financial Ombudsman Service, annual review 2014/2015

the people behind the businesses

Each year around 5,000 complaints are registered with us in the names of businesses. But we know some business owners, particularly self-employed people, complain in their own name - so we think the real number could be far higher.

Given the size of the businesses in question, it isn’t surprising that the people involved may feel a complaint is a personal matter. In our recent detailed review of 200 small business complaints, more than half of the businesses were made up of only one or two people - significantly below the ten-employee limit for complaining to us. Only around one in ten had more than five employees.

These smallest businesses - “micro-enterprises” - account for 95% of businesses in the UK. Even the relatively small number of complaints we reviewed highlighted the diversity of the UK small business sector - and how many aspects of everyday life depend on these businesses.

  • farmer
  • restaurant
  • driving instructor
  • motor garage
  • plumber
  • therapist
  • business consultant
  • hairdresser
  • decorator
  • hotel
  • window cleaner
  • caterer
  • landlord
  • taxi driver
  • dentist
  • pub
  • shop owner

what's behind complaints from smaller businesses?

their knowledge of money matters

Our review of complaints brought to us by smaller businesses suggests they’re not necessarily more knowledgeable about financial services than individual customers. Fewer than one in ten smaller businesses had any legal or accounting support during the events that led to their complaint. Few employed a paid professional to complain, with more than four in five businesses bringing their complaints to us themselves. Of those who were represented, the very smallest businesses were the most likely to be supported by a friend or family member.

problems with terms and conditions

More than half the complaints we reviewed from smaller businesses involved terms and conditions, exclusions or other features of financial products. Smaller businesses often complained that they didn’t know about one or more of these - or disagreed with the financial provider over how they should be interpreted. We found problems sometimes arose because of an oversight on the part of the micro-enterprise - and sometimes because of a failing by a financial provider.

their expectations of financial providers

In one in five complaints that smaller businesses referred to us, we had to explain things that we found hadn’t been properly explained before. Many smaller businesses told us they were unhappy with the level of support offered to them by financial providers. A quarter felt the financial provider hadn’t supported them enough - or hadn’t fulfilled a “duty of care”.

In some cases we saw, there was an indication that smaller business expected a commitment by their financial provider beyond what was in the formal contract - particularly where the relationship involved lending.

more than half of complaints from smaller businesses involved terms and conditions, exclusions or other features of financial products

taking together the main and additional reasons, smaller businesses complained to us about %
administration 35
costs 20
the product or its sale 28
something that happened after the product had been taken out 49

Sam - adjudicator, banking

From the smaller businesses I talk to, it’s clear their understanding of financial products and services can vary enormously. People are obviously experts in their own particular line of business, but they’re relying on financial providers to be the experts in that sphere. So unfamiliar financial terms and jargon can cause a lot of problems - even if a financial provider hasn’t otherwise acted unfairly. 

While some smaller businesses I talk to have a great relationship with their business manager - who’s gone to great lengths to support them - I sometimes hear from small businesses who’ve been referred to different or specialist areas, and who feel the team they’re now dealing with doesn’t know them or understand their business. Whether this is perception or reality, it seems to me that open and honest communication - on both sides - can go a long way in resolving some of these concerns.

Better communication could also help to prevent other types of problems from escalating. For example, smaller businesses don’t always understand why their bank is asking them to repay a debt - or has reached a decision not to lend further. These may be legitimate commercial decisions, but based on the complaints I see, they’re less likely to feel unfair if they’re clearly and sensitively explained.

Tim - adjudicator, insurance

The type of business that’s brought a complaint to us - and what they’ve complained about - will have a big bearing on the impact the problem’s having and how I’ll need to go about sorting things out. At any one time, I might be talking to a solicitor or dentist in dispute with their professional indemnity insurer - or a corner shop owner having trouble with a water damage claim.

In my experience, small business owners often have no more knowledge than a private customer about the financial products they’re using. In more complex or confrontational disputes, one or both sides may have felt the need to get legal representation. But that isn’t generally the case, and of course it isn’t necessary - it’s a key part of my job to explain things that perhaps haven’t been clear in the past.

It’s always important to bear in mind the full consequences of what’s happened - whatever the outcome of the complaint. That applies whether someone’s new to what they do - for example, because they’ve just set up a new company - or has built up their business over many years. The prospect of losing their livelihood - and what that could mean for their family and employees - means problems can have a very emotional, as well as practical impact on a lot of people.

If I agree a smaller business has been treated unfairly, putting things right may be as straightforward as telling an insurer to pay a claim. But in some cases, more may need to be done. For example, while a limited company itself clearly can’t be personally upset or distressed, it may experience inconvenience or financial loss as a result of a financial provider’s mistake.

I often see complaints involving insurance where a small business, their insurer and a loss adjuster have essentially fought themselves to a standstill over a long period of time. We often find they welcome our involvement - as the only practical way of breaking the deadlock - but also have very entrenched positions.

So it’s essential for an adjudicator to listen and understand where everyone’s coming from. And it’s always very satisfying to mediate a way forward and have all the parties thank you for your help. They may not have got exactly what they wanted at the beginning, but they’re relieved that everything’s been brought to a close so they can finally move on.

sharing what we know …

Our report on micro-enterprises and financial services - available on our website - gives an insight into the problems smaller businesses bring to us, based on a review of over 200 complaints we resolved last year.

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.