Complaints handling: The FOS
So far as complaints handling is concerned, the FCA expects firms to analyse the root causes of complaints, treat customers fairly and take into account the FOS’ decisions where relevant.
While customers are able to complain to a firm directly (and firms are required to record and report such complaints to the FCA in accordance with reporting obligations), complaints may also be made to the FOS.
When assessing whether or not a HCSTC firm has provided credit irresponsibly, the FOS will consider whether the firm did everything that was required and if not, whether the customer has suffered loss as a result.
The FOS will also carry out an assessment in order to determine:
- whether the firm completed reasonable and proportionate checks, satisfying itself that the customer would be able to repay in a sustainable way;
- if reasonable and proportionate checks were carried out, whether a fair lending decision was made; and
- whether, depending on the circumstances, at the time of each application and/or increase in credit, there was a point at which the HCSTC firm ought reasonably to have realised it was increasing the customer’s indebtedness in a way that would be either unsustainable or otherwise harmful and as a result, shouldn’t have provided credit.
While the FOS will consider the relevant rules and guidance, it will also consider whether the lending provided to a customer is sustainable.
By this, can the customer repay the credit without undue financial difficulty, ensuring they are able to meet other commitments without having to borrow further?
If the FOS finds in favour of the customer, it will ask the firm to put that customer back in the position that they would have been in, but for the lending (this usually means by repaying the interest and may also include compensation for distress or inconvenience).
Importantly, for every case that is referred to the Fos, in general terms, a £550 case handling fee (to be borne by the firm) becomes payable.
This, together with the propensity of the Fos to exercise its discretion in favour of the customer under its fair and reasonable criteria which is not necessarily aligned with existing regulation, has resulted in uncertainty and increased pressure, both financially and administratively, for firms in the HCSTC market.
The FCA supervises HCSTC firms and has the power to investigate if it believes that there have been breaches.
While a HCSTC firm is required to do its best to prevent breaches and resolve them as soon as they occur, it is also required to notify the FCA of any significant breach and take prompt action to put things right.
This is driven out of the FCA’s main objectives to:
- stop harm as quickly as possible;
- ensure firms have put things right (including redressing customers affected);
- address root causes of potential harm; and
- hold the firm and/or individuals accountable if there has been misconduct, which could include enforcement action.
If a HCSTC firm is found to fall short of these standards, it may be asked to sign a voluntary requirement (a VREQ), designed to prevent ongoing harm to customers or markets.
This could involve HCSTC firms not accepting new business until the issue is resolved, undertaking proactive redress (including for those customers who have not complained), dealing with any Fos backlogs and not disposing of assets.
Redress programmes are significant and costly exercises that require a significant amount of time and money.