The Financial Ombudsman Service (FOS) regularly publishes a newsletter giving useful information to financial firms and containing brief case studies to illustrate recent cases that it has handled. In the latest edition of the FOS newsletter, the lead story is about the Ombudsman’s experience to date in dealing with complaints involving mortgage intermediaries. With efficient and effective complaints handling being one of the key elements of treating our customers fairly (to say nothing of safeguarding the reputation of our own businesses), it’s worthwhile to take a look at the sort of cases that have failed to be resolved and have ended up with the Ombudsman.
In one case, a remortgage applicant was advised by his broker to ignore arrears letters from his existing lender, as they were the result of an ‘administrative muddle’. By the time the remortgage could be arranged, the customer’s arrears meant that the mortgage deal was priced at a higher rate than the borrower thought he could have obtained without the adverse credit reference. The firm rejected the customer’s complaint, so he took it to the Ombudsman. In settling the dispute, the FOS upheld the complaint in part and the firm agreed to pay the client £200 as recompense for his inconvenience and embarrassment. However, on investigation, it was discovered that the customer had additional credit problems that he had not disclosed to the broker, so the part of the complaint concerning the higher interest rate on the remortgage was not upheld.
In another case, a customer complaint was upheld where a right-to-buy deal was not proceeded with by the applicant but the firm charged a substantial fee. The customer said she had been told she would only have to pay a fee if the loan was completed, whereas the firm was insisting that the payment of a fee, regardless of completion, was part of its terms of business. The FOS took the view that this was a unusual/onerous contract term that should have been brought fairly and reasonably to the attention of the customer. As, in this instance, the terms regarding the fee were not given a prominent position in the agreement and the wording was ambiguous, the FOS ruled the customer did not have to pay the fee. The firm agreed to pay the customer £250 for the inconvenience and worry she had been caused, and has since amended its terms and conditions to give due prominence to its fees policy. In a third case, the customer’s complaint that the mortgage adviser had not acted quickly enough was rejected. Here, there was no evidence that the customer had told the firm about their tight timescales, or that the firm had been unduly slow.
It’s clear that, should any firm be faced with a FOS adjudication, the ability to produce clear documentation to support ones case is vital – but thanks to the Financial Services Authority (FSA) we should all have well-oiled complaints handling systems and full documentation at our fingertips. It’s worth remembering also that the FOS is an impartial body, whose strap line is ‘settling financial disputes without taking sides’. These case studies show that reaching agreement is the aim, rather than finding fault.
Keeping compliant
Q1: We are a small mortgage and general insurance broker and we are becoming increasingly worried by the high profile of payment protection insurance (PPI) sales and the problems identified by the FSA, along with fairly large fines for brokers. What can we do to best protect ourselves as we sell mortgage payment protection insurance (MPPI) to a fairly high percentage of our clients, but have never had any problems or complaints from them?
Bill answers: “Obviously with such a good track record you must be doing several things right for your clients. The trite answer would be remaining compliant. Seriously, there is one point in the PPI profile, which I think the Association of Mortgage Intermediaries (AMI) has mentioned several times, which is that the sales of MPPI have generally been shown to be of a very good quality, despite a recent large fine for a broker who basically seems to have been failing to generate detailed factfinds with the majority being non-conforming clients. By taking the time and trouble to obtain full details from clients and explain all aspects of the product carefully to clients and selecting products from quality providers, as well as confirming details in writing which the client can easily understand, will go a long way to address your fears.”
A matter of principle
Q2: Much has been printed about principles-based regulation, which will depend a great deal for its success on the FSA’s attitude. Do you believe it will be successful and what are the main benefits for firms as you see it?
Bill answers: “Yes, I do think it will be successful, but most importantly it will be a real business benefit for those firms that actually embrace it. There is a risk involved, naturally, including the attitude of the FSA’s representatives. However the FSA has and is investing a lot of time and money in training/coaching all of its staff who have any form of contact with firms in how to approach principles-based regulation and how they should act. If we do the same, there are real benefits to be had. The flexibility that principles-based regulation will give firms must be a major benefit, both saving money and enabling firms to use it to reflect their own business approaches and models. While the rulebook won’t go away, the ability of firm’s compliance personnel to provide guidance through a good understanding of principles-based regulation and deliver practical guidance will be critical.”
New market entrants
Q3: I know several people have asked this question recently, but do you believe the numbers quoted of new lenders applying for FSA authorisation?
Bill answers: “I do, but I don’t necessarily think they will all obtain authorisation and arrive in the market – there will be possible failures as market share just isn’t available. The new players we have seen are run by some experienced and astute players with track records. It may be the new lenders that are unable to attract top managers or ignore compliance and risk that will struggle.”
