BURNING QUESTIONS
AN INTRODUCTION TO THE OMBUDSMAN

Financial Ombudsman Service

Who are you?
We were set up by Parliament in 2001 under the Financial Services and Markets Act (FSMA) as a free and informal alternative to the courts to resolve complaints between financial businesses and their customers. As well as FSMA, we follow the FCA’s Dispute Resolution (DISP) rules.

How are you funded?
We are funded by a combination of a levy and case fees. Importantly, financial businesses don’t currently pay a case fee for their first 25 complaints of each financial year. This means that most financial businesses never pay a case fee. We publicly consult on our plans and budget each December and we would welcome your views.

I’ve received a complaint. What do I do?
DISP describes a complaint as any expression of dissatisfaction. This may seem basic, but it’s important. Once a consumer or their representative presents you with a complaint, you have eight weeks from that point before they can refer it to our service. The rules don’t allow for the eight weeks to be extended, so it’s important that you engage with the complaint from the outset.

Final Response Letters (FRLs) are important. Not only is it a chance to resolve the complaint, it’s also the first we’ll see of your argument. If you don’t think the complaint is one we can look at (for example, if you think it is time barred) it is important you are clear about it in your FRL.

If you’re not sure how to answer a complaint or how we’ll look at it, you don’t need to wait for it to be referred to our service before you speak to us. As well as online resources that set out our approach in detail, including published decisions, our technical desk is available to answer questions about how we deal with complaints. You can contact our technical desk either by phone on 0207 964 1400 or email at technical.desk@financial-ombudsman.org.uk.

How do you approach complaints?
The majority of complaints we see in consumer credit (alternative lenders in particular) are about irresponsible lending. Our approach to these complaints is well established and is rooted in longstanding regulatory principles. The four key pillars of our approach to affordability are to ask whether:

• proportionate affordability checks were completed before lending

• those checks were borrower-focused. It’s not sufficient for lenders to consider only whether they are likely to get their money back

• checks have adequately assessed the sustainability of the lending, thinking about the customer’s wider financial situation. Repeat lending is a particular indicator that lending has become or is becoming unsustainable.

• firms have appropriately monitored how customers are repaying debt and whether they stepped in where there are signs of financial difficulty.

These pillars are based on longstanding regulatory principles going back at least ten years and examples of good industry practice which go back further still. We set out on our website which specific rules within the OFT’s Irresponsible Lending Guidance and the FCA’s CONC handbook set out these expectations. And we’ve quoted these rules extensively in published lead decisions.

A view from a FOS case handler doesn’t look right but I don’t want an Ombudsman decision. What can I do?
You don’t need to ask for an ombudsman’s decision if you don’t agree with or have questions about one of our views. If you’ve received a view that doesn’t look right or appears different to our established approach (or that you just don’t agree with) then in the first instance you should speak to the case handler. You can also ask to talk to one of our ombudsmen.

My business model and processes have been approved by the FCA but you’re still upholding complaints.
We sometimes hear from businesses that question why we have upheld complaints when their business model and processes have been approved by the FCA, or that they have had had a recent supervisory visit from the FCA that did not give cause for concern. It’s important to remember that our role is different to that of the regulator. We look at the individual circumstances of each complaint.

Why am I charged a fee for complaints you haven’t considered?
How we charge for complaints is set out for us by the FCA in the Fees Manual of the FCA Handbook of rules and guidance (FEES). FEES sets out a clear definition for chargeable cases, which stipulates that charges apply (with some limited exceptions) to “any complaint referred to the Financial Ombudsman Service”. Exceptions include complaints that we deem to be frivolous and vexatious, but we see relatively few complaints that fall into this category.

Are your complaints decided by an algorithm?
No. Each complaint is assessed by one of our investigators, taking into account the individual circumstances.

Is it true that if we’ve lent to a customer a certain number of times, you’ll automatically uphold the complaint?
No. While the pattern of lending is one of the things we’ll consider, there are a number of other indicators that we’ll look at to see if and when a customer’s debt may have started to beome unsustainable. These include the number of outstanding loans, the time period over which the customer has been in debt, the time between one loan being repaid and the next being taken out.

Does the Ombudsman require me to have asked a customer for a bank statement when carrying out a proportionate affordability check?
No. CONC isn’t prescriptive on what constitutes a proportionate affordability check, but it does say that checks must be borrower focused. This doesn’t necessarily mean asking for a bank statement, but a lender should be able to evidence what checks it has carried out. When investigating a complaint, we’ll sometimes use a bank statement to recreate a picture of what a proportionate check might have shown.

What are you doing to curb fraudulent activity by CMCs?
We know that firms have serious concerns about CMC behaviour, but we haven’t seen evidence of fraud from CMCs complaints that are referred to our service. We remain very vigilant and proactive on this though. When we see examples of poor practice, we refer them to the relevant regulator.

Firms often tell us that CMCs are operating poorly, for example either sending complaints without authority or sending complaints that are unsubstantiated. It is important to say that these are two separate issues. Submitting large volumes of complaints in a short space of time using a standard format does not automatically mean that the complaints are invalid.

Where you do have concerns, it’s important that you flag them, with evidence, to the FCA or the SRA. Where you think a complaint should not have been referred to the ombudsman service, it’s important that you tell us why as soon as possible.