The Financial Conduct Authority (FCA) should use its power to impose redress schemes on companies in case of large misselling controversies, before individual customers are forced to escalate the case to the Financial Ombudsman Service (FOS), according to the author of an internal review into the consumer arbitrator.
Richard Lloyd, former director of Which? and chairman of claims management company Resolver, was tasked by the FOS itself with the review in March, following an exposé by Channel 4’s Dispatches documenting mishandling of cases.
Giving evidence on the review’s findings to Parliament’s Treasury Committee, Lloyd took issue with what committee member Rushanara Ali called a “pass the buck” tendency, in which customers affected by large-scale misselling scandals are instructed by firms to raise a complaint and escalate it to the FOS.
“What I would rather see is the regulator imposing good redress schemes on firms that have harmed, caused consumer detriment on a large scale,” Lloyd said.
Lloyd criticised the way a “huge” number of PPI complaints were “dumped” on the Ombudsman over a short period of time, leading to the Ombudsman stating “it was all about getting more cases solved … all about productivity and less about quality”. One of the main accusations the FOS faced following the Dispatches report was that adjudicators were rushing through cases in order to meet quotas.
“I think what has been missing in the debate about the FOS is that there is a bigger, in my view more effective, way of tackling these kinds of systemic or widespread consumer harms earlier,” Lloyd said.
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“That is, for the FCA to use that power better to force the firm to put things right in the first place, proactively contacting its customers, saying, ‘This is what we are going to do to put it right’, [rather] than to wait for the individual complaints to work through the system and potentially to end up at the FOS, that then has to scramble to work out what its position would be.
“We are addressing the solution too far down the line.”
Ombudsman faces “litigious” claims management companies
Lloyd acknowledged that “overall, the financial services market is getting more clobber from [the] FOS than previously”.
“I think they are doing much more now to clobber the market when it is not performing right as shown by the casework. For the mass consumers who do not use the FOS, I think the FOS is doing more now than it has done previously.”
However, he added that the FOS was not designed to face scenarios like the PPI controversy, in which it had to “deal with litigious claims management companies”.
“[The FOS] needs to be an organisation that can face up to quite significant legal threats. They have had to get in place a bigger in-house legal team. That is partly where cases are getting stuck sometimes,” he said.
“I have always said that people should be very wary of using a claims management company when they can bring a complaint themselves. What I want the FOS to be is more accessible to individual consumers.”
Lloyd also took issue with the 2016 internal restructuring of the Ombudsman, which it said forced adjudicators to work “on a smaller set of products [and] issues” than they were used to.
Although Lloyd said the rationales for carrying out the restructuring – “to help consumers more quickly, to resolve cases earlier, to have expertise nearer the front line – were “soundly based”, he added that the new division of roles could have undergone more testing before being fully implemented.
He said the model had evolved in the two years since, and now resembled “a blend [of] specialism and generic working, while maintaining that objective for expertise to be nearer the front line”.
The Ombudsman’s impression following the restructuring was “that it was all about productivity and more about quality,” Lloyd said. “Now the internal message has been it is important that staff take their time to get cases right, to do the right thing, and it is not solely about hitting casework target numbers.”
Nevertheless, he added one of the main objectives of the restructuring, namely shorter waiting times, were still “not happening at the moment”.
“Extremely constructive” relationship between FCA and FOS
Questioned by the Committee on the bumpy internal implementation of the restructuring, chief Ombudsman Caroline Wayman said: “it is a fair criticism to say that it was a bit top-down”, but denied this was the case for the relation between the FCA and the FOS.
She said the FOS had a “very strong dialogue” with the FCA in all areas, and added: “What we are able to do for the FCA is provide it with the real-life examples of the ways in which certain issues affect consumers.
“We are able to feed on case examples and we are very keen to do that. We do that regularly at all sorts of different levels, both in terms of data and also examples.”
The FOS saw a 40% jump in consumer credit complaints for the 2016/2017 year. Car finance agreements were singled out as an increasing source of dispute, likely as a result of higher consumer awareness through extensive media coverage of car finance in 2017.
“Despite the low upfront cost of arrangements like PCPs, we do hear from people who are struggling to keep up with their repayments,” the FOS’s annual report in May read.
“As in other areas of credit, car finance providers aren’t always responding as positively as they should when they know someone’s in trouble.
“But we’ve noticed too that some lenders aren’t being thorough enough with the affordability checks they’re carrying out right at the start.”