Katherine Clark says quick resolutions will mean the ombudsman is less likely to get involved
In these difficult economic times it is unsurprising that record numbers of complaints are being referred to the Financial Ombudsman
Service (FOS). In 2010/11 it had 206,121 new cases, rising by 28% in 2011/12 to 264,375. In the second half of 2012 alone it received a further 283,251 complaints.
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More significantly for the motor finance industry, the number of cases which specifically relate to consumer credit products and services is continuing to rise too – the number of complaints increasing from 7,250 in 2010/11 to 7,416 in 2011/12.
In 2011/2012 more than half of the complaints against businesses with consumer credit licences were upheld.
While FOS is an independent service, the impact of any decision can encourage spurious claims to be made, delaying the process of recovery.
If the debtor does not accept the Ombudsman’s decision, neither party is bound by it and the debtor is free to pursue a complaint
against the finance company in court proceedings.
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By GlobalDataIf the debtor accepts the Ombudsman’s decision, both parties are bound by it and the finance company has no further recourse in the FOS procedure.
With this obvious disparity in the parties’ positions and the fact that the FOS decide cases on what they believe to be ‘fair and reasonable’ and can direct finance companies to take specific action, finance companies are at a disadvantage in the FOS procedure
which can have a knock-on effect on their recoveries.
The likelihood of the FOS investigating a debtor’s complaint is far less if the debtor makes a complaint to it after proceedings have been issued against him or her, as a result of the jurisdictional issues facing the FOS once proceedings have been issued.
The FSA handbook is clear that the FOS may not deal with a complaint when proceedings have been issued, unless they are stayed.
A stay could either be by consent or court order. At this stage in the recovery procedure it is unlikely that a finance company will agree to a stay.
The FOS aims to settle complaints within six to nine months which is a lengthy delay when one considers court proceedings could be concluded within this time.
In addition, if the debtor accepts the decision it will be binding on the finance company and any time and costs invested in the
litigation will be wasted. At least continuing with the litigation will provide the finance company with grounds to appeal, if it disagrees with a ruling on a point of law.
The decision for a stay may be out of the finance company’s hands if the debtor makes a successful application to the court.
The success of an application for a stay on the grounds to allow the FOS to investigate the matter will very much depend on what
stage the court proceedings are at.
The court may be more willing to grant a stay early on, to allow the parties to attempt to settle the matter by this form of alternative dispute resolution. It is unlikely that the court will take the same view in the later stages of proceedings.
I recently represented a motor vehicle finance company in a case where a debtor made an application for a stay to allow the FOS to investigate his complaint.
The court took a very dim view on the application, which was made five weeks prior to the trial date. The application for the stay was dismissed and the finance company was awarded its costs of dealing withthe application.
My client subsequently obtained judgment at trial and the matter was then wholly out with the FOS’s remit – the FOS being unable to investigate a complaint where the court has made a decision on merits.
So, in order to overcome debtors having the upper hand and finance companies potentially being bound by decisions which will undoubtedly impact upon their recoveries, cases should be issued quickly. This will decrease the likelihood of the FOS being
involved, allowing the parties to deal with the dispute during the course of litigation on a level playing field.
Katherine Clark is a solicitor in the defended and complex asset recovery team at Ford & Warren Solicitors
