As readers will know, the Financial Ombudsman Service (FOS) is an independent service open to individual consumers and small businesses, and is intended to assist parties in resolving financial complaints without court proceedings.
The FOS will consider the complaint and will ask both parties for any evidence which it needs to see and which is relevant to the matter at hand. It will then consider the evidence and the complaint, and make an independent, impartial decision based on its assessment. The decision will be sent to both parties with an explanation of why it reached the decision it did.
When considering complaints (including against motor finance providers), the FOS will consider all circumstances, including:
- What is fair and reasonable, based on all of the facts presented to it;
- Any signs of financial difficulty and an individual’s circumstances;
- Whether firms have fully informed consumers of their options;
- Whether reports to credit reference agencies are accurate and fair;
- Whether firms have been flexible and used initiate to resolve complaints;
- Whether firms have considered the specific, individual needs of a consumer (for example, a need to stay mobile).
The FOS has recently published its future strategy, in which it outlines three strategic priorities on which it will focus until 2025. Those are:
- Enhancing its service;
- Preventing complaints and unfairness arising; and
- Building an organisation with the capabilities it needs for the future.
Firms should focus on ensuring that their complaints policies and processes ensure that complaints can be dealt with effectively and efficiently if they do arise. However, the primary focus should be on preventing complaints from arising at all.
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This may mean ensuring that communications to customers in relation to financial services and products are clear, and provide full and detailed information to enable the customer to make an informed decision about what is right for them and their needs.
The FOS sees a broad variety of complaints across the financial services sector. Complaints arising out of motor finance are dealt with under the umbrella of consumer credit by the FOS. Between the 2018/19 and 2019/20 financial years, the FOS saw a reduction of 22% in the number of enquiries received about consumer credit products and services, and a reduction of 33% in the number of new cases about consumer credit products and services.
However, in the first half of 2020/21, the FOS saw an increase in complaints where firms had not issued a final response within the specified complaints handling timescale.
It is clear that many firms have faced challenges caused by the Covid-19 pandemic, and this appears to have had a direct impact upon their ability to comply with their complaints procedures and has therefore resulted in an increase in complaints. The FOS does expect to see an overall increase in the number of complaints for the 2020/21 financial year.
Analysis of complaints data from FOS and the FCA helps to identify current and future complaints/litigation trends:
- Complaints about guarantor loans, home collected credit and credit cards continue to rise
- FOS has seen a high level of CMC activity in certain areas e.g. home collected credit
- There has been an increase in COVID-19 complaints
- Complaints about how CMCs have handled PPI claims remain the most complained-about CMC activity
FCA complaints’ data revealed firms received 2.96m complaints in H1 2020 (52% lower than H2 2019) and the lowest levels since H2 2016. The largest decrease was for PPI, following expiry of the FCA’s PPI deadline.
After PPI, the most complained about products were current accounts (16%), credit cards (8%) and other general insurance products (7%). Unsurprisingly given the pandemic, travel insurance was one of the few products in the insurance group to show an increase in complaints received. The FCA is consulting on extending its guidance on cancellations and refunds aimed at credit/debit card firms and insurance providers.
The FOS has also seen an increase to the complexity of the complaints which are referred to it, and has identified the following factors as contributing to that trend:
- Financial pressures on consumers and firms has resulted in both parties being less willing to compromise;
- Potential vulnerability and complex needs of consumers;
- An increase in fraud and scams during and related to the Covid-19 pandemic;
- An increase in complaints against smaller businesses which are more robustly defended than they may be with larger businesses;
- Developments in consumer credit law and an increase in the number of consumer credit cases.
The FOS recognises that the first lockdown has very clearly impacted on case numbers. Likely driven by operational issues and travel restrictions caused by those circumstances. However, the FOS has called upon firms to endeavour to make a concerted effort to begin to drive down the volume of complaints. Indeed, initial feedback from firms suggests that many larger firms have seen a reduction in their own complaints, which, in time, should mean a reduction of complaints which reach the FOS.
The Covid-19 pandemic, and subsequent increase in cases has clearly impacted the FOS’ future funding plans. It had planned to bring in amendments to its funding structure in April 2020, which it took the decision to delay.
Therefore, in the 2021/22 financial year, it proposes to bring in a number of changes to assist it in continuing to fulfil its duties and to provide the required services.
The FOS intends to increase the levy (an annual sum paid by the firms covered by the FOS and which is collected by the FCA), and individual case fees (a fee paid by the firm against which a complaint has been made). This would mean a return to the 2019/20 consultation level of £106m for the levy and a £100 increase in the case fee.
Currently, case fees are not payable on up to 25 complaints, and this will be maintained. It has also proposed to freeze the minimum levy paid by the smallest firms, so smaller firms are unlikely to be affected by funding increases.
The FOS intends to publish its finalised plans for 2021/22 by 31 March 2021. Firms should ensure that they review the plans once published and should seek advice on any areas of concern or uncertainty.
It is clear that the future remains somewhat uncertain for the FOS and for the broader consumer credit sector. Firms should ensure that they stay up to date on all current guidance and publications from the FCA and FOS.
They should proactively aim to prevent complaints, and when they do arise, should aim to resolve the complaint at the earliest stage, wherever possible. Now is a good time to review complaints policies and procedures, to ensure that they align with the FOS’ strategies, and the individual firm’s aims and strategies.