Financial Ombudsman: the consumers' champion

The welcome news that the Financial Ombudsman Service (FOS) is to increase its award limit from £100,000 to £150,000 from January 2012 has been countered by recent claims that the FOS is struggling to deal with the sheer number of complaints it receives, with delays of up to two years being reported. But, be that as it may, our experience is that the service remains a cost-effective – and relatively timely - route for individuals and small businesses struggling to get complaints against financial services companies dealt with.

In order for the FOS to pursue a complaint, the consumer must prove that they have already followed up their complaint appropriately with the company concerned. If the dispute reaches deadlock, the FOS (which is free for consumers but charges a fee to the target of the complaint) will arbitrate on the matter. The Ombudsman’s verdict is final and binding and, if the complainant accepts the award made, any further pursuit through the courts for additional compensation will fail. By the same token, if the FOS decides in the consumer’s favour but the latter declines to accept the award if it does not cover the full amount of the loss, the FOS verdict should strengthen the consumer’s hand should they decide to issue a claim and pursue the outstanding monies through the courts.

The valuable service provided by the FOS was underlined by a recent case in which we advised a client whose insurance claim had been turned down. Our client was burgled and (insured) valuables taken. The insurance company declined the claim on the basis that the policy was void due to alleged misrepresentations at the time it was taken out. 

This was incorrect, so we wrote to the insurer’s solicitors - while liaising with the insurance brokers - and also wrote to Lloyd’s of London. The insurer rejected our complaint, as did Lloyd’s.  As we had taken the correct steps to resolve the dispute, we were able to apply to the Financial Ombudsman Service rather than resorting to issuing a claim in court.  The FOS Adjudicator, after reviewing the facts, upheld our client's complaint. 

However, that was not the end of the matter. The insurer appealed that decision (about 10% of Adjudicator decisions are appealed) and the claim went up to an Ombudsman.  The Ombudsman upheld our client's complaint in November 2011.  He also ordered a considerable interest rate to be applied to the sum claimed, which addressed the delay while the matter was appealed, and covered the costs that our client had been forced to incur by the wrongful denial of cover.

This case sums up the principal benefits of using the FOS: the issue was resolved at little cost and with minimal risk because there was never any question of having to pay the other side's costs.  Plus, in spite of recent concerns about the speed of the FOS service, it was faster and far less disruptive than a court claim would have been. Also, although the FOS is independent of the FSA, it will apply the FSA’s consumer codes (such as treating customers fairly and the insurance code) far more readily than the courts will.

One final thought in relation to the solvency of the financial adviser/insurer or other person against whom a complaint is made: if there is any doubt about the other side’s ability to pay any award, then it may be beneficial to make a negligence claim in court instead.  That would trigger professional indemnity cover before that insurance is cancelled.  The Financial Services Compensation Scheme which might, in some cases, step in to redress harm done by insolvent financial advisers, has a compensation limit of just £50,000. The appropriate course in any particular case will obviously turn on its own facts, but there are several routes open and we advise on them all.

January 2012