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ombudsman news

issue 80

October/November 2009

chief ombudsman's final decision

This month's ombudsman focus features an interview with Walter Merricks, conducted shortly after he announced he would be stepping down in October after ten years as chief ombudsman. Walter Merricks spoke to Neasa MacErlean, a journalist with 20 years' experience of writing about business, the law and consumer finance.

Neasa MacErlean: Your last annual review showed you received a record 127,000 new complaints last year - over four times the level you were getting when you first became chief ombudsman. Has the ombudsman service now become a complaints "factory" - and what needs to happen to stop complaints soaring-

Walter Merricks: In terms of complaints volumes, I certainly hope the next ten years might be less of a rollercoaster ride than the last ten. We've had to deal with some enormous surges in caseload - including floods of complaints about mortgage endowments, split-capital investment trusts, "precipice" bonds, Equitable Life, bank charges and more recently, of course, payment protection insurance (PPI).

These surges of complaints have all been symptomatic of much wider problems. I very much hope that if similar widespread problems emerged in future, the ombudsman service would not have to be centre-stage in dealing with the fall-out.

Whether in financial services, or in any other mass consumer market, there's the potential for large numbers of consumers to all be affected adversely by the same problem or detriment. But those consumers don't have the power in law to work together to get redress collectively.

I don't believe it's right that the legal system should effectively allow a company responsible for causing consumer detriment to hold on to profits they have made - leaving individual consumers to have to take action, one by one, to get rightful redress.

There's clearly a gap in the legal system here - something I focused on in our last annual review. It's this gap in the system that's given rise to the claims-management industry - with a quarter of the cases we deal with at the ombudsman service now referred by claims-management companies.

The government white paper published by the Treasury in July (Reforming Financial Markets) makes some strong recommendations in this area. The white paper says that more can be done to improve the standards of complaints-handling by financial firms, to reduce the number of cases referred to us, and to use the complaints system to identify and deal with emerging problems before they become widespread. The Treasury has also floated the idea of 'collective redress' through the courts - for groups of consumers who have suffered widespread detriment.

The Civil Justice Council and the European Commission, too, have been looking at ideas involving "collective redress" for consumers - rather than requiring consumers to pursue individual complaints where there's a wider problem. And in its recent white paper (A better deal for consumers), the Department of Business, Innovation and Skills has recommended setting up a Consumer Advocate - with powers to take legal action on behalf of a group of consumers where consumer law has been broken.

What all this shows is that complaints-handling - and the question of redress for groups of consumers collectively suffering the same losses - is now at the top of the agenda. I'm pleased that the Financial Services Authority (FSA) and the government have said this is an area that needs greater focus.

NM: How has the ombudsman service changed over the ten years since you became its first chief ombudsman-

WM: It's really been a process of ongoing evolution. At the start, ten years ago now, it was actually quite a disjointed picture. Seven separate ombudsman and complaints schemes - covering different sectors of the financial services industry - coming together to form the new single Financial Ombudsman Service, literally under one roof for the first time.

Then our jurisdiction started to grow, to cover complaints in other key areas: insurance-broking; mortgage-broking; consumer credit - from store cards to payday loans; travel insurance sold with holidays; "sale and rent-back" housing transactions - and from November 2009, payment services including money-transfer operators. Pretty much all the pieces of a complicated jigsaw are now in place.

And that has to be better for everyone. I don't think anyone can doubt that this is the right way to do things - the right approach to give consumers confidence that unresolved disputes will be handled fairly. Imagine - of the 114,000 cases we resolved last year - what would have happened, how much would it have cost, how many would have fallen by the wayside, and how much inconsistency would there have been, if these complaints had each had to go through the courts instead-

NM: Your last annual review shows that the proportion of complaints upheld in favour of consumers has risen from a historic level of about 30 per cent to almost 60 per cent. What's happening here-

WM: The proportion of complaints we uphold is a pretty accurate reflection of the quality of complaints handling by financial businesses. It's clear that over the last 12 months, many businesses have been under financial pressure. Senior management focus at some businesses has evidently been on riding out the financial turmoil - not on providing top-quality customer service.

This has led to patchy services and under-resourced complaints handling at some businesses. We've seen a significant increase in businesses failing to address their customers' complaints fairly and properly. This does surprise me - bearing in mind we gave notice over a year ago that we would be moving towards publishing complaints data on individual businesses - which we did for the first time last month.

NM: As well as chief ombudsman, you're the founding chairman of the International Network of Financial Ombudsman Schemes. How does the UK Financial Ombudsman Service square up internationally-

WM: We're actually the largest ombudsman scheme in the world. And I think it should be a real source of pride that we have become the model to follow internationally.

The ombudsman model, particularly in financial services, now operates across most of Europe and in virtually every Commonwealth country - as well as in North and South America. With our strong influence in Europe - through FIN-NET (the European Commission-sponsored network of financial dispute-resolution schemes that we helped to set up) - we've provided assistance to the newer EU members. And we're currently giving the benefit of our experience to new ombudsman schemes being set up - for example - in Kazakhstan and Armenia.

Japan and Hong Kong have also consulted us recently on the role of an ombudsman in retail financial markets. Given that the Hong Kong region of China wouldn't be permitted to set up an ombudsman without the approval of the Chinese government, I suspect this could mean that China, too, may have a real interest in this area.

NM: Do you actually deal with complaints yourself-

WM: I rarely deal with individual complaints in terms of handling them from start to finish. But I'm certainly in touch with all of the difficult issues - and I'm in very close contact with our ombudsmen on a wide range of complaints-policy matters.

NM: Have consumers altered over the last ten years-

WM: I think many consumers have certainly become more confident and empowered. They're more prepared to ask questions, shop around, assert their rights - and complain when they're not happy. This is clearly a result of the internet revolution - enabling people to research and share information freely on everything from what travel insurance to buy, to how to make a mis-selling complaint.

Just as great a challenge for us, though, is to make sure we provide an accessible service for those consumers who aren't wired up to the internet. There are a lot of less fortunate, less enabled consumers being left behind by all the new technology. We're just as concerned to make sure that they, too, know about their consumer rights - and their right to come to the ombudsman.

NM: So how do you see the development of financial literacy-

WM: It's going to be a very long-term project - a generational issue. It isn't a question of change overnight. In the past, most people have struggled to take an interest in financial matters - but I think that's now starting to change. One possible silver lining to the current recession is that tighter budgets are making us all more interested in how we save and spend our money. Pensions and mortgages are now regularly front-page news stories.

NM: What message do you have for financial businesses-

WM: Well, as I mentioned earlier - if businesses have been using the recent economic difficulties as a reason for not dealing with customer complaints as fairly or thoroughly as they ought, then this could well turn out to be very short-sighted. When the economy gets back into shape, consumers will remember who dealt fairly with them and who didn't.

NM: What's the future in the UK for the style of dispute resolution that you've developed at the ombudsman service-

WM: It's not just overseas where there's interest being shown in our ombudsman model. Here in the UK, researchers and officials from government, academia and the justice system take a very close interest in our approach to resolving disputes.

This approach involves resolving the vast majority of complaints at the earliest possible opportunity. We prefer to settle complaints informally - getting both sides to agree at an early stage to any recommendations or informal settlement that our adjudicators may suggest. Fewer than 10 per cent of cases include an appeal to one of our ombudsmen for a final decision. And only a tiny number of cases involve a face-to-face hearing.

This is the opposite of the system that operates in most courts and tribunals - where hearings and lengthy lawyer-heavy processes are the norm. I'm very interested in the outcome of some of the pilot schemes currently in progress, where parts of the justice system are testing out dispute-resolution mechanisms that we have been developing at the ombudsman service over the last ten years.

NM: You mentioned publishing more information about your work. What does that involve-

WM: After very extensive consultation and preparation, we published complaints data on individual businesses for the first time last month. This data is available on our website - and is aimed at helping financial businesses improve their complaints handling, and reducing the number of unresolved disputes referred to us.

This publicly-available data complement all kinds of other material already available on our website - and the additional information we will be publishing there as part of our ongoing "openness" agenda.

NM: And finally - life for you after the ombudsman. What will your new job involve at the Office of the Health Professions Adjudicator-

WM: I'll be the first chair at this new statutory body, which is being set up to provide a single independent tribunal for 'fitness to practice' cases involving doctors, opticians and other healthcare professionals.

I very much see this new body as being part of the overall justice system - and we'll be learning from other parts of the system, including the ombudsman. In fact, there are some similarities with my work at the ombudsman service ten years ago - since, like the Financial Ombudsman Service, the Office of the Health Professions Adjudicator will be partly new and partly built on foundations already in place.

It will certainly be interesting to see how GPs compare with financial businesses on the complaints front.

news update ...

Following Walter Merricks' announcement that he will be stepping down after ten years as chief ombudsman - our board took soundings from key consumer organisations and industry bodies on what relevant experience stakeholders believe the new chief ombudsman should have - as well as on the professional and personal attributes the ideal candidate for the post should possess.

This feedback from stakeholders has been essential in guiding the work of the executive search consultants, Russell Reynolds Associates, appointed to help the board with the selection process for the new chief ombudsman. This process included advertising the post last month (September 2009) in the appointments section of the Sunday Times.

Meanwhile, our board has appointed principal ombudsman, David Thomas, as interim chief ombudsman. He will carry out the responsibilities of chief ombudsman from the date of Walter's departure on 30 October until the new chief ombudsman starts in due course.

David Thomas has been with the Financial Ombudsman Service for ten years - most recently as corporate director with responsibility for strategic policy, legislation and rules, as well as relations with government, regulators and the European Commission. Before this he was the Banking Ombudsman and a solicitor in private practice.

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ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.