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A consumer&#39s view

A remark by outgoing FSA chairman Sir Howard Davies will resonate with all those who have to deal with consumer complaints.

Referring to the increasing number of complaints about missold endowments, he warned that the endowment review is overwhelmed by spurious claims due to the UK&#39s growing compensation culture. Complaints have been made by consumers even where they were fully aware of the terms of the products.

You only have to read the Financial Ombudsman Service&#39s reports to realise that this is a serious and growing problem. An increasing number of unscrupulous individuals are prepared to complain of misselling or some other misdemeanour even when it is perfectly clear that they knew absolutely what they were doing.

One of the most common examples of this “try it on” approach familiar to every financial journalist is the homebuyer who pretends not to have understood early repayment penalties on a loan.

Typically, they took out a three-year fixed-rate mortgage at around 6 per cent, probably two years ago, when the standard variable rate mortgage stood at 7 per cent.

With plenty of mortgages now on offer at around 4 per cent, they want to remortgage at the lower rate but do not want to pay the penalty. They write in, claiming they never understood that there was an early repayment penalty.

Some years ago, it might have been possible for a homebuyer not to understand early redemption penalties as they were uncommon, often written in the small print and not highlighted.

Indeed, in some cases, the FOS found in favour of the borrower when it was satisfied that the homebuyer had been misled or had not had the penalties adequately explained.

But today, almost all lenders spell out any penalties in big letters and point it out before the customer signs up. It is almost impossible for any homebuyer not to be aware that these penalties exist. Yet still the complaints come in, often from articulate, clearly intelligent and well educated individuals.

Something has to be done to deter these spurious claims, not only because they are clogging up the system and delaying compensation to those with legitimate complaints but also because it is an unhealthy development which encourages irresponsibility.

It will also put an impossible strain on the FOS which is providing an excellent service for consumers.

The situation is getting out of hand. Newspapers often get complaints from individuals who have already been turned down by the FOS on totally legitimate grounds. These complainers are determined not to be responsible for their own actions. Some are obviously lying.

For example, one homebuyer recently claimed to have been missold an endowment on the grounds that he was a “low earner” and therefore a repayment mortgage would have been more suitable.

He was referred to the FOS but it was pointed out to him that his claim might well be rejected on the grounds that, since he knew a repayment mortgage was more suitable – as he clearly did – why did he agree to take out the endowment?

It was obvious what the homebuyer had done. He wanted to keep monthly outgoings to a minimum and, soon after taking out the endowment loan, he cancelled the endowment and simply made interest-only payments. He now wanted compensation for the fact that none of his loan had been repaid.

This sort of behaviour has to be discouraged but quite how to do it is difficult to see. Fees would deter many low-income complainants with legitimate grouses – even if imposed retrospectively and only on those whose claims were rejected.

Perhaps it is time that journalists, the FOS and others who deal with consumer complaints pointed out the hard facts of life and sent away the professional whingers with a flea in their ear – even if they do then complain to the editor.


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