The FSA and the ABI are preparing for a new surge in mortgage endowment complaints, toughening up their rules for complaint handling and seeking to make successful complainants put any redress they get back into their shortfall.
But many believe their actions will provide the momentum for the wave.
The regulator and the ABI recently imposed time limits on endowment complaints, limiting policyholders to three years from their first red letter to complain in a bid to limit exposure to the industry.
But to offset the effect on the consumer, the new rules also require firms to issue reminder letters six months before the time bar for an individual's complaint.
Both the FSA and the ABI claim they are working towards better communication with consumers.
FSA director of retail themes Anna Bradley says: “We are ensuring that consumers who believe they were missold their endowment policies are clear about the date that their right to complain runs out and to address concerns that some consumers could unwittingly lose the opportunity to claim compensation.”
ABI director general Mary Francis believes these changes will mean that clients get helpful information and advice. She says: “Customers with potential shortfalls who have not taken appropriate action must be helped to do so as soon as possible.”
She says the ABI has taken the views of the industry into account and admits it was prompted by the recommendations of the Treasury select committee which has been scathing about what it sees as poor complaint handling from the industry.
Bradley says this change is part of a package of measures the FSA is working on to “improve the regular information provided to consumers about their endowment policy”.
But there have been some serious concerns from the industry since the changes were made, especially from IFAs as they seem again to be left in a potential gap.
For product providers, falling into line with the rule change may be relatively straightforward but they may be unworkable for IFAs.
Aifa director of policy Fay Goddard does not believe the rules were very well thought out on to how IFAs fit in and says Aifa will be looking closely at the practicalities of how the new rules will work for advisers.
This seems to be a critical gap in the thinking of both the ABI and the FSA. Providers can simply include the time bar warning in reprojection letters but the position is different for IFAs who advised on endowment mortgages.
Commercial law firm Reynolds Porter Chamberlain partner Jonathan Davies says: “Where an IFA advised on the case, responsibility for any complaint falls to the IFA, not the product provider. But it is the product provider which issues the reprojection letter and this means that many IFAs do not even know when such letters are issued. Therefore, the IFA cannot issue the warning that the FSA's new rules require.”
But FSA head of media Rob McIvor believes that claim is complicating the issue of consumer notification. He says: “If a provider levies a time bar, this is not an issue for the IFA. The claim will be against the provider, irrespective of whether or not an intermediary was involved.”
But Davies believes the issue becomes doubly dubious for IFAs if, as sometimes happens, the product provider sends copies of reprojection letters to the IFA. He says:”If an IFA then wrote to his client warning of the time limit, it would be difficult for this letter not to be an invitation to make a claim.”
This, of course, would not be welcome by an IFA's professional indemnity insurer.
Magian Mutual director Glyn Morris says the regulatory and media encouragement for policyholders to complain is “total nonsense”. Of late, he has seen daily increases in endowment complaints, yet the success rates for those complainants have been “incredibly low”.
He sees the new rules as “time-wasting correspondence” and sees it as asking for trouble if an IFA sent out a separate letter in the fashion laid down by the FSA, especially if the provider had already sent out a letter.
Morris says: “Raising the matter separately would not be recommended. We would prefer if IFAs speak about mortgage endowments as part of a review of a client's whole financial circumstances so it could be discussed as part of a whole financial plan.”
The reply from the FSA is that intermediaries already have to let customers know they have the right to complain. McIvor says: “The point can be made in material already being sent out. It does not have to be sent separately.”
But Davies sees further complications with the ABI's new requirements for providers to include the time limit warning in their reprojection letters.
He says if product providers do not presently have time bars in place, they do not have to include time limit warnings in reprojection letters. But he believes if an IFA sold the endowment, a provider will need to get the IFA's agreement that they also do not want to impose a time bar.
Davies believes this raises a serious concern. “Some IFAs will not be consulted and may, therefore, be prevented from defending claims on time limit grounds because the necessary information will be excluded from the reprojection letters,” he says.
The ABI says it is not ignoring this issue, drawing attention to it in its new code but says it is not in its domain to put any guidelines down for IFAs. The FSA also feels that the warnings and requirements are adequate.
However, with actions that many believe will spur on a new wave of complaints, it seems the IFA has yet again been left in the breach between provider and the regulator.