The number of new cases referred to the FOS in the last
financial year outstripped its own estimates by 40%, according to
its annual review for 2008/9. And nearly 60% of the
complaints it handled were found to have been justified.
The FOS deals with complaints from consumers against companies
that provide financial services, such as banks, building societies,
financial advisers and insurers. It also handles complaints brought
by small businesses, charities and trusts, although the vast
majority of its cases are from private individuals.
Many of those claims are the result of single-issue consumer
campaigns on topics such as payment protection insurance (PPI).
Of the 127,471 new cases received by the FOS between April 2008
and March 2009, 30,000 were PPI-related, a three-fold increase on
the previous year.
Most complaints related to PPI mis-selling, rather than claims
made under PPI policies. And most of those related to single
premium PPI, where the premium is added to the loan and interest is
charged on the premium and the loan together. But the ombudsman has
also seen a significant number of cases relating to PPI sold
alongside credit cards.
Overall, the FOS upheld consumer complaints in a record 89% of
PPI-related disputes.
In June 2008, faced with the fast-growing number of PPI
complaints, the FOS asked the Financial Services Authority (FSA) to
consider whether it should take regulatory action to address the
problem at a higher level.
Earlier this year, the FSA asked firms to stop selling single
premium PPI alongside personal loans by the end of May 2009. And
radical changes to the way PPI is sold are due to come into effect
in 2010, following a Competition Commission investigation into the
market.
FOS chairman Sir Christopher Kelly said that the high volume of
complaints about payment protection insurance was especially
disappointing. "We had hoped that action by the regulator might
result in the collective resolution of large numbers of complaints
without the continuing need for consumers to refer individual cases
to us," he said.
Complaints about other types of insurance also increased.
Buildings and contents insurance disputes, for instance, were up by
29% and 23% respectively. The report suggests the economic climate
means that policyholders are putting in more insurance claims and
insurers resisting them more vigorously.
Complaints about health and medical insurance, however, remained
at similar levels to the previous year. The FOS attributes this to
improvements in the way insurers deal with income protection and
critical illness disputes and, in particular, to the Association of
British Insurers' new code of practice relating to non-disclosure
and long-term protection policies.
The report says the code has resulted in fewer cases about
non-disclosure of a consumer's medical history being referred to
the FOS and that, in those cases it does see, it is agreeing more
often than before that the insurer acted fairly.
Outside the realm of insurance, complaints about credit cards
rose by 32% and investment disputes were up 30%, triggered largely
by falls in the stock market. There were also large numbers of
cases relating to mortgages (up 11%) and unsecured loans (up
44%).
Justified complaints
Given the current economic climate, Chief Ombudsman Walter
Merricks said the increase in the number of cases reaching the FOS
was perhaps no great surprise.
"But what is new and very disappointing is that, of the
complaints we have handled, we have found a record proportion –
almost six out of ten – to be justified," he said.
Under FOS rules, the consumer must first make a complaint to the
business concerned, giving it the opportunity to resolve the
dispute before the matter is referred to the FOS. If a business
finds it is receiving a series of complaints about the same issue,
the FOS expects it to identify the root cause of the problem and
take pro-active steps to address the situation.
At a regulatory level, the FSA and the Office of Fair Trading
have powers to address "systemic issues" that have resulted in
widespread detriment to consumers.
As a result of this system, the FOS would normally expect to
decide between 30% and 40% of cases in the consumer's favour. But
Merricks believes the very large number of complaints now being
upheld shows the complaints-handling framework is not working as
well as it should.
Legislators in both the UK and Europe are currently considering
ways of enabling more consumers to obtain compensation via class
actions where there has been widespread consumer detriment. These
include adopting a system that would enable collective actions to
be brought on behalf of all consumers adversely affected, not just
those who had opted to take part in the litigation.
Commenting on this proposal, Merricks says in the report: "While
this may not be a universal – or even an appropriate – remedy for
all instances of widespread detriment, it does focus on the core of
the bigger problem rather than on the detail of individual
cases.
"There are other possible redress mechanisms that could be
considered. But what is clear is that the present system for
dealing with large areas of unremedied consumer detriment is in
need of reform.
"A solution to the problem would reduce the volatility of the
ombudsman service's workload, adjust unrealistic expectations of
what we can be expected to deliver, and ease tensions between the
financial services industry, its regulator and its ombudsman.
"Above all, it would be a real step towards re-establishing the
confident of consumers in financial services," said Merricks.
Want more content like this? This story was written by the insurance and reinsurance legal experts at Pinsent Masons, the law firm behind OUT-LAW.COM. See our legal info for Insurance and Reinsurance.
