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ombudsman news

issue 6

June 2001

in brief ...

insurance complaints after N2

Many banks and building societies sell general insurance (such as loan payment protection) as intermediaries. Complaints about such sales are covered by the Banking Ombudsman Scheme or Building Societies Ombudsman Scheme - whose cases are dealt with by the banking and loans division of the Financial Ombudsman Service.

But from N2, (1 December 2001 - the date when the new regime comes into effect), complaints will be allocated to the Financial Ombudsman Service's case-handling divisions according to the product involved, rather than the type of firm that sold it. So the insurance division will deal with complaints that are solely about insurance. And, when dealing with subsidiary insurance issues in banking complaints, the banking and loans division will follow the insurance division's lead, to ensure a consistent approach.

So (if they haven't already done so) banks and building societies may wish to look at the April 2001 insurance issue of ombudsman news, to familiarise themselves with the Insurance Ombudsman's general approach to such cases. This focuses principally on the responsibilities of the insurer, but there are also implications for intermediaries. See the back page of this edition for details of how to obtain our publications.

You can get further guidance on our general approach to insurance cases from our technical advice desk:
phone 020 7964 1400

firms not responsible for what their customers do

Banks and building societies check up on people who open accounts with them. But there is a balance to be struck between being overly cautious and overly free-and-easy. A firm can't necessarily be held responsible for what its customers use their accounts for, provided it acted reasonably and with an appropriate amount of care. Here's a recent case which shows what we mean.

case study - firms not responsible for what their customers do


Mrs B replied to a national newspaper advertisement offering "business opportunities" linked to betting on horses. The advertiser had a banking account and Mrs B paid money into that account. But the "opportunities" were a scam - the money was soon withdrawn and the advertiser disappeared. Mrs B said the firm where the advertiser had its banking account should pay her money back. Her reason was that she had subsequently discovered that, at the time she paid her money into the account, the advertiser had been under investigation for fraud.

The firm knew of the investigation - but the account had been properly opened. At the time Mrs B paid the money over, no prosecutions had been started and there was no freezing or court order in place. The firm therefore had no authority to refuse to accept money paid into the account, and was under no obligation to do so. So we did not require the firm to make any payment to Mrs B.

minors' accounts

Complaints involving the accounts of minors don't come up very often. But, with more banks and building societies trying to encourage children to open accounts, such complaints may well grow.

More often than not, the law about what a minor can, and cannot, be held accountable for is not always fully understood - especially by parents or relatives, who invariably become involved in the complaints which reach us. A recent case highlights some points.

case study - minors' accounts


Mr C was 16 years old and had two current accounts (with different firms) and a savings account. He managed these accounts well.

He recently paid in to one of his current accounts a £2,000 cheque from Mr D, and then withdrew most of the money and gave the cash to Mr D. Shortly afterwards, the cheque bounced, so Mr C owed the firm £2,000 and was unable to get the money back from Mr D.

Mr C's father argued that his son had been "led astray" by Mr D. Up until then, his son had been careful with his money. The father said the firm had failed to protect his son from the effects of having a cheque bounced. He wanted the firm to write off what his son owed.

If this had happened in England or Wales, English law would have provided that repayment of an overdraft cannot be enforced against a minor. But Mr C lived in Scotland, where the position is different. Ordinarily in Scotland, 16 year olds are liable for what they do. But Scots law also allows a court to set aside a transaction if it considers it to be "prejudicial".

So, in effect, Mr C (through his father) was asking us to consider his withdrawal of the money as "prejudicial". However, we decided Mr C was well aware of the risk and effect of a cheque bouncing - because it had happened to him before. He paid the money to Mr D knowing what might happen, even though he may have considered it unlikely. We did not uphold the complaint.

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.