Seeking middle ground in disputes

Apr 18 2008 By Richard Woodward

Finding the answers when lender falls out with borrower

As the UK economy worsens, more people struggling with debt and credit problems are likely to make complaints about how they have been treated by financial companies.

This means the work of the Financial Ombudsman Service (FOS), which resolves disputes between consumers and financial firms, will have to change.

A review of the independent service has concluded that it will need to shift its focus away from resolving traditionally middle-class disputes towards more vulnerable groups needing help with debt and credit disputes.

The review, by Lord Hunt of Wirral, makes a series of recommendations to improve the FOS, in particular to make it more open and transparent.

While he has praised much of the work of the FOS as "highly impressive", Lord Hunt said there was room for improvement, adding: "In my view, the FOS still looks too much like a middleclass service, for middle-class people.

"I believe the profile of those using the FOS should, must and will evolve, as the organisation thinks not only in terms of its traditional areas of activity - dealing with matters such as mortgages, insurance and pensions products - but also in terms of the problems that typically afflict our less affluent citizens.

"Difficulties with debt management are only likely to increase in scale and numbers as the current economic difficulties mount. The sums of money involved may generally be on the low side by FOS standards, but the human misery attendant on them can be devastating."

The FOS was set up by Parliament to provide a free, independent service to people in dispute with finance firms.

Each year it receives about 500,000 inquiries from consumers and settles about 100,000 disputes. Its decision is binding on consumer and company.

Recent settled cases include an insurance dispute over whether uneven concrete flooring resulted from subsidence or poor construction.

In a bid to ensure more people have access to the FOS Lord Hunt suggests that it spends more on advertising.

He also suggests an awards scheme to praise the best performing companies and shame the worst.

More data should be published on how individual financial services companies handle complaints, he said.

He also suggests the FOS should have a freephone number and extend opening hours, with case advisers to guide vulnerable consumers through the process.

The FOS, which commissioned Lord Hunt's independent report, welcomed many of his 73 recommendations.

Chairman Sir Christopher Kelly said: "Lord Hunt sets out a clear agenda for responding to the rapidly-changing complaints landscape - with customers of the ombudsman now more numerous and diverse in their backgrounds and levels of financial literacy than ever before.

But he warned: "The implementation of the more ambitious proposals would clearly have significant implications as far as our budget and resources."

Lord Hunt has also dismissed suggestions that FOS judgements should be more closely aligned with the legal system and have an external appeals system.

But it should highlight the fact that both parties in a case have a right to a second decision from an ombudsman.

He has also rejected calls by some financial groups to implement a fee for those making a complaint to head off persistent, unfounded actions.