I’ve just finished watching last night’s Channel 4 Dispatches special on the Financial Ombudsman Service. First things first, I rate Dispatches incredibly highly. I was fortunate enough to work on one of its investigations back in my journalist training, and I can attest to the intellectual and journalistic prowess of the people on that team.
That’s why I found it particularly disappointing the show promoted a number of persistent myths about the service. I’m not saying the FOS is perfect – far from it – but there are some areas where criticism has been unwarranted.
The role of the FOS
One of the case studies used in the film featured a woman who complained to the FOS after she was the victim of fraud and her bank account was drained. Her complaint was rejected by the ombudsman, but she says a fraud specialist later discovered the bank was aware of the breach and did not stop it.
She says: “I thought the FOS was there to represent the individual, the ordinary person, to challenge the bank.”
This comment is a perfect example of a misconception over what the FOS does. If she wants someone to take on the banks, she needs a lawyer, or maybe the police; not the FOS, which is an impartial arbitration service. The whole point is that it does not represent anyone.
The title of the documentary demonstrated the same inaccuracy: “Who’s policing your bank?”
The FOS does not “police” your bank. That’s the job of the FCA and would imply the FOS had even a speck of control over the kind of conduct risk that led to payment protection insurance and endowment misselling – historically by far and away the bulk of its workload.
Lack of specialism?
Some of the most serious accusations in the film surround a lack of training and specialist knowledge among adjudicators. Staff reported feeling underprepared for complex cases and having to Google products they were unfamiliar with.
This ignores the fact there is an inherent trade-off between thinking the FOS costs too much – a common complaint – and needing expertise to staff it.
There is also a case to be made that “experts” in particular subjects tend to think in similar ways; an echo chamber effect of moving in the same circles and learning from the same material.
The FOS tried having more dedicated specialists several years ago. It did not work. All that happened was that the backlog built up and experts had to be paid on a retainer basis to cover niche cases whenever they came in.
The real skills an ombudsman needs are generalist: the ability to request the right information, interpret it dispassionately and deal with tempers flaring on both sides.
The FOS has a six-month training programme. Maybe that is not enough. But it would require an inhuman level of omniscience for any one person to be an expert of every new and esoteric product that entered the market.
Investigators may well feel they have not had enough training after six months. They may feel they will never know enough about a particular product or complaint type. But that does not mean they can’t arbitrate effectively and come to a reasonable decision.
The documentary moves on to show the Arnold Schwarzenegger PPI deadline awareness advert (designed by the FCA, not the FOS) to allege thousands of claims were potentially turned away unfairly and that, overall, the FOS could be acting in favour of large financial organisations over consumers.
The fact is that 66 per cent of PPI claims were upheld in 2015/16 – higher than all other types of complaints. Given 85 per cent of all PPI complaints were bought by claims management companies, known for mass email and cold-calling operations and who would have little idea whether or not the individual actually had a valid claim, that two-thirds were valid does not sound unreasonable.
The biggest banks are the only ones that make significant payments for the FOS. Unless you have more than 25 complaints, your actual FOS bill is minimal because you don’t pay for cases until that point.
While that is great for IFAs, for example, there is an argument it creates an incentive for the FOS to serve the banking sector that pays its wages. Fifty-seven per cent of claims do go in favour of banks, true. But that does not mean the organisation has an inherent bias against consumers. For each business or product type, there will be personal opinions held by the individual adjudicators.Looking for neutral people on huge financial issues is like looking for a needle in a haystack.
It’s the same with journalists. Because we are human, we have particular feelings about particular companies or debates. It doesn’t mean we can never write about those businesses or issues.
There are more than 2,000 staff at the FOS. There is no way they all happen to have had a pre-determined hatred of consumers. Or financial services companies for that matter. The uphold rate against IFAs, for example, is only around 30 per cent, and many complaints will have been withdrawn on the advice of the adjudicators before they get to a final decision anyway.
For all its flaws, the FOS didn’t deserve the Channel 4 treatment.
Justin Cash is editor of Money Marketing. Follow him on Twitter @Justin_Cash_1