For some time, I have campaigned to bring the Financial Ombudsman Service into line with the precepts of English law. The FOS works within an approximation of English law, with its determinations using balance of probabilities’ criteria.
One central aim of claim instigators is to persuade people to agree compensation to avoid the matter being escalated to the FOS. The fourth and each subsequent complaint currently costs £500, win or lose, and the cost of investigation can easily run to thousands of pounds. No surprise that insurers often settle rather than incur these costs.
Advisers are cowed less easily and usually argue their corner. Nonetheless, claim instigators know there is a good chance the FOS will discover some “fault” and find in favour of the complainant. This is due to the Utopian concept of “natural justice” and the fact that complaints escalated to the FOS cost nothing – nothing for the complainant or claim instigator, that is.
Latest FOS figures confirm that 83 per cent of all payment protection insurance complaints originated with an instigator.
How do we stop this? One would anticipate the Ministry of Justice sorting it out, although I have my doubts. A better mechanism would be a change to the FOS processes. Sadly, this offers scant potential, given the contemporary appetite for finding in favour of the consumer.
Perhaps the best method is to remove those design glitches that encourage claims. As long as complaining remains free, it will be seen as an easy road to riches for opportunists and instigators. The FOS regularly bemoans its workload, so a nominal complaint fee, possibly £100, would be sufficient to discourage opportunists yet still be low enough to encourage genuine complaints. Such a fee would be refunded if successful, similar to the Abta scheme.
Most advisers would consider even this insufficient due to the stance adopted by the FOS when assessing the merits of a complaint. Some time back, a former adjudicator released details of troubling methodology at the FOS. One related to dispute resolution rule 2.8.2 which time-bars a complainant who was aware or “ought reasonably to have become aware that he had cause for complaint”.
The ex-adjudicator verified that the FOS disregards evidence of prior knowledge, thereby entertaining complaints that should have been rejected as out of time. She also suggested that frivolous and vexatious cases were routinely accepted rather than being dismissed without merit.
If the FOS worked within the confines of the law and a modest fee was used to dissuade the opportunists, then the Ministry of Justice would not be needed because claim firms would have moved on to new victims.
Alan Lakey is partner at Highclere Financial Services