Complaints handling by the financial services industry’s two major claims bodies has come under fire for differences between decisions, the success rate of claims and the amount of time it takes to resolve cases.
Peter O’Donnell, chairman of the Claims Bureau, which specialises in cases involving financial mis-selling, heavily criticised the Financial Ombudsman Service for the way it handles cases.
He said it should adopt a similar system to the Financial Services Compensation Scheme, which deals with complaints against firms no longer trading, where claims are treated through a process that determines whether a firm would owe a legal liability to the consumer.
The Fos, which deals with complaints against active companies, has hundreds of adjudicators who review cases independently and make decisions on what they personally believe is “fair and reasonable”.
A spokesman for Fos said it takes account of the law, rules and good practice of the industry, adding this is the way parliament intended it to operate.
“Like the courts, ombudsmen are clearly in the business of delivering justice. But we perform our function in a different way to the courts, generally using quicker and more informal procedures,” he added.
The firm submitted 41 cases to the Fos between 2014 and 27 March this year, but has had just one successfully upheld case which paid out to the client. The Claims Bureau is still waiting for a final decision on 31 cases.
Not including those claims which are still being assessed, this is a success rate of around 10 per cent.
Over this period, the Claims Bureau submitted 102 cases to the FSCS, but received 37 payouts, with 57 cases still waiting to be resolved.
By comparison, this is a success rate of more than 82 per cent.
The FSCS applies a civil liability test to determine whether to uphold a complaint, meaning the body needs to be satisfied a court would more than likely have found in the consumer’s favour had the consumer taken legal action against the firm.
However, the Fos decides each complaint on the basis of what they believe is fair and reasonable in all the circumstances of the case, rather than using strict civil liability.
In March this year the Claims Bureau stopped lodging complaints with the Fos, with Mr O’Donnell blaming a lack of progress. It is now outsourcing Fos claims to a legal firm.
Mr O’Donnell accused the Fos of taking much longer to decide claims than the FSCS and struggling with complex claims, pointing to two cases which were provisionally upheld at the start of this year where the decision has still not been finalised.
The Fos spokesman said the time it takes to reach a decision is largely dependent on how complex the case is and how long it takes to get the information needed to get to the bottom of the complaint.
The Claims Bureau chair called for complaints to be assessed under common law, or using judicial arbitration - where lawyers for litigating parties each present their side of the case to a selected arbitrator who then gives his opinion on who would win and how much the loser would pay.
“Consumers have a total loss of faith in the system and see the Fos as being grossly unfair,” he said.
Another problem, he said, was there was no way for consumers to challenge a Fos decision without going through the High Court, which can cost at least £20,000.
“The Fos needs a regulator,” he said, adding you can complain about a Fos case, but you can’t complain about the Fos process.
The spokesperson for the Fos added surface similarities between some complaints, when looked at in detail, generally through up “very different facts and issues - because everyone’s personal and financial circumstances will be different”.
“So the fact that we may arrive at different outcomes on separate cases shouldn’t be seen as surprising. This isn’t a question of inconsistency – it reflects that we look at each complaint individually.”
He also pointed out the technical, academic and professional qualifications of the adjudicators and ombudsmen are varied.
“However, what makes a good adjudicator or ombudsman is more than just letters after their name; it is the ability to stand back and listen to all sides of the story – to weigh up the arguments and arrive at decisions fairly and impartially."
Dan Farrow, director of SBN Wealth Management, said the claims management firm is comparing apples with oranges.
“The Fos deals with disputes, whereas the FSCS deals with claims against companies that are near or in default, which means the outcome is pretty definitive.
“Usually, claims companies deal with people who buy the Star, Sun or even worse the Daily Mail and who are chancing their luck, so the Fos usually see through this, and thankfully throw these cases out.”
katherine.denham@ft.com
