With the rise in complaints to the Financial Ombudsman Service (FOS) rising by ten per cent year on year, the article looks at the state of the regulator and the alternatives to using it.
Introduction
With the number of consumers complaining about financial transactions to the Financial Ombudsman Service (FOS), the cracks seem to beginning to appear in its infrastructure. Many consumers feel that rulings have been predetermined before they even complain. This article discusses the types of problems consumers face and the alternatives to using the FOS. On the flip side, the article also discusses the good work the FOS does it getting compensation for people from organisation that were previously regulated by the Financial Services Authority.
When to and when not to use the Ombudsman
Many people feel that they have no other choice because the established means of seeking redress, the Financial Ombudsman Service (FOS), is letting them down. More people are using the alternative of going through the courts to seek compensation because they find it frustrating dealing with the FOS. However pursuing a claim through the courts can prove costly, time consuming and also a very risk process. If the court finds in your favour, the firm you are seeking compensation from covers the costs. But if you lose, you could be faced with a large legal bill, which typically cost a minimum of £1000. The other downside to pursuing a claim through the courts is that it can take up to 6 months and in some cases even more.
An example of the types of claims being pursued through the courts are ones where that deal in insurance claims against floods and fires in properties that are not lived in. Some insurers have a clause in their policies which state a property has to be lived in. With the rise in buy-to-let properties, there is also a increase in the number of properties that from time to time are temporarily empty. If the insurance document clearly stipulates that cover is not valid for a vacated property the FOS will normally side in favour of the insurer.
Some commentators believe there has been a downturn in the service provided by the FOS as it attempts to struggle with a record number of claims. The independent body handles complaints about insurance policies, pensions, home loans, and investments and complaints about all these, at the time of writing, were up 10% last year.
People are more likely to have a case upheld by the Ombudsman rather than through the courts, but the regulator upholds only about 40% of insurance claims. However, it is always worthwhile trying the Ombudsman before going through the courts. The FOS's services are completely free and you can still pursue a claim through the courts if it fails. On the flip side the FOS will generally refuse to take on a case that has failed in the courts.
If you believe you have a claim then the first port of call should be the company you have a dispute with. If the firm is unable to resolve the problem to your satisfaction within eight weeks, the company itself should refer the case to the Financial Ombudsman.
Many people try to boost the chance of success by employing a claim management company. These firms claim they can improve the chances of success of getting a positive response from the Ombudsman, but the problem is that it will be costly. Some firms charge £500 for you to use their services and will than take around 25-35% of the payout should you win. Independent statistics show that the percentage of successful claims from people using a management company versus the ones not using one are very similar - which suggests that there is very little point in using one.
If you do decide to use the courts to seek redress the way you do it depends on the size of the claim you wish to make. The small claims court is the best option for low value claims and you can even register a claim on-line at the government website. To keep costs even lower it may be the case that you decide to represent yourself. If your claim is higher than say £5000, then the best course of action may be to approach a solicitor, who's costs will probably come in at around the £1000 mark.
For some people, and not just those whose claims are dismissed by the Ombudsman, the only alternative is to go to court. The FOS is financed by the FSA and will only deal with claims against firms who the FSA regulated. So in the case of things like Secured Loans, there is a chance that the company you seek a claim against is not regulated by the FSA. As another example the regulator is unable to take action against most share scams because the perpetrators are not authorised or based in the UK and are therefore outside its jurisdiction. The courts are also the only option for recovering losses of over £100,000 and for those who leave it to long to complain.
All large companies impose time limits on endowment policy holders, who think they are the victims of mis-selling. The rules state that those who want to complain must do so within three years of being warned about an endowment shortfall. However, if the firm you wish to claim against is no longer trading you can seek redress from the industry funded Financial Services Compensation Scheme.
The Financial Services Compensation Scheme (FSCS)
The FSCS came into force in 2001 as part of the 2000 Financial Services and Market Act (FSMA).
The FSCS provides compensation to people who have lost money through companies who were previously regulated by the FSA, but have since been found to be 'in default'. In this context 'in default' means that the company is unlikely to be able to pay compensation off its own back - this will probably be because it has ceased trading or is insolvent. The funds the FSCS use for compensation come from levies it charges to people regulated by the FSA.
The types of things you may have lost money on are deposits (e.g. a Bank saving account), home loans, investments and most types of insurance.
To find out more about the FSCS visit its website, it is pretty slick and easy to navigate and includes things like:-
A list of companies the FSCS deems to be 'in default'. This section of their website also includes a section where you can key in a company name to check if it is 'in default'.
Another area of the website gives you the limits for each type of claim and the website also includes an interactive flowchart, which aids you in deciding whether you have a valid claim. However the bottom line is that if a firm is deemed 'in default' you can claim, but if it is still trading you need to approach the Financial Ombudsman to help with a claim.
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