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ombudsman news

issue 36

April 2004

issues of jurisdiction in complaints against banks and building societies

Some cases are outside our "jurisdiction" - which means we have no power to deal with them, whatever their merits. In this article, we look at some jurisdiction issues in cases involving banks and building societies.

is the firm covered by our jurisdiction-

When establishing whether or not a case is within our jurisdiction, we look first at whether the financial firm concerned is covered by our jurisdiction. All banks and building societies are covered for complaints about events that took place from 1 December 2001, when we acquired our legal powers. But they are only covered for events that took place before 1 December 2001 if they were previously covered by the Banking Ombudsman scheme or Building Societies Ombudsman scheme.

Before 1 December 2001, it was compulsory for building societies to be covered by the Building Societies Ombudsman scheme. But membership of the Banking Ombudsman scheme was voluntary and although more than 120 banks - including the well-known high-street names - were covered by it, some smaller banks were not. For banks that were not covered by the Banking Ombudsman scheme, we can only deal with complaints about events that happened from 1 December 2001.

is the activity covered by our jurisdiction-

We can deal with complaints about activities that are regulated by the Financial Services Authority (FSA) - and with complaints about certain other specified activities. Together, these activities include:

  • deposit accounts
  • current accounts (whether in credit or overdraft)
  • mortgages
  • loans, apart from "restricted credit"
  • plastic cards (debit, credit, cash or charge), but not "store cards"
  • ancillary banking services, such as cash machines and safe deposit boxes.

(In broad terms, "restricted credit" and "store cards" - which we do not cover - relate to point-of-sale credit provided by a retailer, even if the finance house that provides the funds is - technically - a bank, because it has permission from the FSA to accept deposits. We do not cover American Express cards, as the company that issues them is not a bank and is not regulated by the FSA. It could join our jurisdiction voluntarily, but has not yet done so.)

We can also deal with advice and activities that are ancillary to the activities listed above. This would cover, for example, the situation where a mortgage lender provided the valuation for a mortgage application it was considering - unless the lender made clear to the borrower that the valuation was carried out by an independent surveying firm.

where did the activity take place-

We can only deal with complaints about the activities already described if they are carried on in - or from - the United Kingdom. That means we cover accounts in the UK and problems with plastic cards issued in the UK (even if the problems take place abroad).

However, the Channel Islands and the Isle of Man are not part of the UK, so we cannot deal with complaints about accounts that are held there, even if they involve a UK-owned bank or building society and the customer lives in the UK. The Isle of Man has its own financial ombudsman scheme - the Channel Islands are still thinking about it.

who has made the complaint-

We are only able to accept complaints if they are made by an "eligible complainant".

Usually, the complaint must arise from the complainant having been a customer (or potential customer) of the bank or building society. But non-customers can bring their complaint to us as well, if the complaint relates to:

  • a guarantee or security that they gave for a mortgage or loan granted to someone else;
  • a cheque guarantee card issued by the bank or building society that the complainant relied on when they accepted a cheque for their business;
  • a cheque, collected by the bank or building society for someone else's account, where the complainant is the "true owner" of the cheque or of the funds it represents;
  • a banker's reference given to the complainant by the bank or building society;
  • a trust or estate where the complainant is a beneficiary and the bank or building society is the trustee or personal representative.

If the complaint is made by a business, its yearly turnover must be under £1million - although this limit does not apply to sole traders and partnerships if the complaint is against a bank and the events took place before 1 December 2001.

when did the event complained about take place-

Ordinarily, we can deal with complaints only if they are made within the relevant time limits. Those making a complaint have:

  • six years to bring the complaint to us, from the date of the event complained about; or
  • (if later) three years from the date when they knew, or should have known, that they had cause for complaint.

If they do not refer the complaint to us within that time, they must be able to produce some record (such as a written acknowledgement) that the bank or building society concerned received the complaint within the time limit. In any event, the complaint must be referred to us within six months of any final response letter from the bank or building society.

We can waive the time limits in exceptional circumstances - for example, if someone was unable to submit the complaint in time because they were seriously ill in hospital. And there are special time limits for mortgage endowment complaints.

There are also instances where we have the discretion to dismiss certain cases without considering their merits - even though the cases are technically within our jurisdiction. We will write about these in a future edition of ombudsman news.

case studies - issues of jurisdiction in complaints against banks and building societies

building society share account - whether we can consider complaint about the firm's failure to notify member of its annual general meeting

Mr T saved part of his earnings every month and put the money into a building society share account. He was very annoyed when the building society failed to give him notice of its annual general meeting. Unhappy with its response to his complaint about this, he complained to us. He said that the firm had deprived him of the chance to attend the meeting and to vote on an issue about which he felt strongly.

complaint outside our jurisdiction
The holder of a building society share account is an "investing member" of the society. So under the society's principles of "mutuality", the account holder is entitled to receive notice of - and to vote at - the society's general meetings. So the firm should have given Mr T notice of its annual general meeting.

However, membership rights do not qualify as one of the "financial activities" that are regulated by the Financial Services Authority (FSA), nor are they an ancillary service. So we had to explain to Mr T that his complaint was outside our jurisdiction and we could not consider it.

broking of personal loan - whether we can consider customer's complaint

Ms J wanted to take out a personal loan and she contacted the broking service of her building society. It recommended what it considered to be the best deal for a personal loan, which was provided by another lender - bank D.

Ms J went ahead and took out the loan from bank D. However, she later complained about the standard of service she had received from the building society's brokers. When the firm dismissed her complaint, Ms J came to us.

complaint outside our jurisdiction
If the building society had advised Ms J to take out one of its own loans, then in doing so it would have been providing an "ancillary service" and we would have been able to consider her complaint. However, we are not able to consider complaints that are solely about the broking of personal loans. So we told Ms J we were unable to look into her case.

bank B carries out mortgage valuation for bank Z as a "free-standing" service - whether we can consider the customer's complaint about the valuation

Mr A found a house he wanted to buy and applied to his bank - bank Z - for a mortgage. As bank Z did not have its own surveying department, it asked bank B to carry out the mortgage valuation on the property. Bank Z and bank B were owned by the same holding company, but were regulated as separate entities by the FSA.

Bank B prepared the valuation report in its own name, saying that the property was worth £150,000 and that it was "good security for the loan". Both bank Z and Mr A based their decisions about the mortgage on this valuation. Mr A took out a mortgage with bank Z and bought the house.

Six months later, Mr A contacted bank Z to complain about the valuation report, which he said had overvalued the house and been "negligent". When bank Z told him it could not look into his complaint, Mr A came to us.

complaint outside our jurisdiction
We could not consider Mr A's complaint. We cannot deal with complaints about mortgage valuation as an activity in its own right.

If bank Z had carried out the valuation itself, then we would have been able to look into the matter. This is because the valuation would have been an ancillary service that bank Z offered as part of its business as a provider of mortgages.

However, since the valuation had been provided as a "free-standing" service by bank B, we could not deal with the complaint.

whether we can consider complaint about business valuation

When B Ltd got into financial difficulties, its managing director, Mr W, complained to his bank.

He said that a "senior official" at the bank had given a "negligent overvaluation of the company's worth", and that this had led to B Ltd entering into larger commitments than it could afford. Unhappy with the bank's response to his complaint, Mr W came to us.

complaint outside our jurisdiction
We explained to Mr W that business valuation is neither a regulated financial activity nor an ancillary banking service, so we had no power to look into the complaint.

shareholder complains about the company's bank - whether shareholder is bank's customer

Mrs K was the majority shareholder in the company, P Ltd. After P Ltd's bank called in its overdraft, Mrs K complained. She said that the bank had acted "too hastily" and had caused her a large financial loss, by devaluing her shareholding.

complaint outside our jurisdiction
Companies are separate entities from their shareholders and the bank's customer was P Ltd, not Mrs K.

Since Mrs K was not the customer of the bank, and this was not one of the instances where we are able to look at a complaint from a "non-customer", her complaint was outside our jurisdiction and we could not deal with it.

If Mrs K had given a guarantee for P Ltd's overdraft, then we could have looked into any complaint from her about claims made against her under the guarantee. But we would still not have been able to look at her complaint to us about how the bank's actions had affected the value of her shares.

whether we can consider customer's complaint about solicitor's bank

Ms L asked her solicitor, Mr D, to transfer money to her bank account. However, it was over six weeks before the money arrived in Ms L's account. Claiming this had caused her "inconvenience and worry", Ms L complained to Mr D's bank, which had initiated the transfer. She subsequently brought the complaint to us.

complaint outside our jurisdiction
Although Ms L was the beneficiary of the money transfer, it was her solicitor, Mr D, who was the customer of the bank concerned, not Ms L. And as this was not one of the situations where we are able to consider complaints from a non-customer, we were unable to help her.

potential beneficiary of a will complains about bank's delay in drawing up the will

Mrs M decided to make a will, leaving all her money to Mr O. She instructed the bank to draw up the will, but died before it had done so. Mr O therefore received nothing from her estate and he subsequently complained to Mrs M's bank that it had acted too slowly in carrying out Mrs M's instructions. Unhappy with the bank's response, Mr O came to us.

complaint outside our jurisdiction
Mr O was not the bank's customer. We can investigate complaints brought by non-customers who are the beneficiaries of a deceased's estate if the bank acted as a "personal representative" or trustee. But Mrs M had only asked the bank to draw up her will - not to carry out any other function. And in any case, Mr O was not a beneficiary of Mrs M's will - he was a "potential" beneficiary. So the complaint did not fall within our jurisdiction and we were unable to look into it.

customer comes to us more than six months after the firm issued its "final response" letter - whether we could look into his complaint

In February 1999, Mr A made a complaint to his building society. The firm did not uphold the complaint and it sent Mr A its "final response" letter, confirming this, in July 1999.

In October 2003, Mr A referred the complaint to us. The firm said that we should not consider Mr A's case because, in its view, it was out of our jurisdiction. This was because more than six months had elapsed since it had sent Mr A its final response letter.

complaint within our jurisdiction
In fact, we were able to consider Mr A's complaint. In its final response letter, the firm had not made it clear that Mr A had six months from the date of the letter in which to bring his complaint to us if he wished to do so.

At the time when the firm wrote the letter - July 1999 - there was no requirement for it to provide this information. However, our rules say that from 1 December 2002 (one year after we acquired our legal powers) the time limits that apply are those of the Financial Ombudsman Service, not those of the previous ombudsman schemes. And that means we can only dismiss a complaint that is referred to us more than six months from the date of the firm's final response letter if the firm has made this time limit clear.

The firm had not made the time limit clear, and Mr A had contacted us within six years of the events that gave rise to his complaint, so his complaint fell within our jurisdiction and we were able to deal with it.

Walter Merricks, chief ombudsman

ombudsman news issue 36 [PDF format]

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.