corporate plan and 2009/10 budget
The Financial Ombudsman Service's overall priority for 2009/10 and beyond continues to be to deliver an efficient and effective service which retains the confidence of consumers, financial businesses and our other stakeholders in the essential role that we fulfil.
As well as being part of the statutory arrangements designed to underpin public confidence in financial services, we are an alternative to the civil courts. This means we also form part of the arrangements for the administration of justice.
how our workload has developed
As expected, the number of new mortgage-endowment cases has continued to fall sharply in the 2008/09 financial year. A large proportion of these cases involve complaints against smaller businesses, many of which are likely to require a formal decision from an ombudsman as the final stage of our dispute-resolution process. We have increased the ombudsman resource available for these cases, leading to a reduction in the number of these cases awaiting decision.
Around 15,000 cases about charges for unauthorised overdrafts remain on hold, pending the outcome of the current High Court litigation involving the OFT. Work by banks and building societies on complaints about these charges is also on hold – under the waiver issued by the FSA. But that waiver does not cover business accounts, where we continue to deal with cases. Nor does the waiver cover accounts of consumers who are in financial difficulty, a category of case which creates particular challenges.
We have received a large influx of complaints about default charges on credit cards, where most card providers appear reluctant to provide financial data to justify the proportionality of their charges. Most card providers tend to settle such cases, with varying degrees of reluctance, once they have been referred to the ombudsman service. More recently we have begun to see cases where card providers have made a disputed step-change increase in the interest charged on existing debt.
The largest single source of complaints by far is currently payment protection insurance (PPI). The Competition Commission has expressed significant concern about the structure of the PPI market and has proposed fundamental changes. And the FSA has criticised the way in which PPI has been (and, in some cases, continues to be) sold by some financial businesses.
The significant proportion of these cases which we upheld, coupled with the reluctance of many financial businesses (including some of the largest) to apply our settled approach when considering complaints themselves, led us to conclude that there appeared to be a systemic problem in relation to past sales of PPI. We questioned whether individual consumer complaints are the most appropriate way in which to deal with what appears to be a systemic problem.
We wrote formally to the FSA in July 2008, under the "wider implications" process which is designed to manage overlaps between our work and that of the FSA and OFT. We invited the FSA to consider wider regulatory action, as consumer detriment was unlikely to be confined to those consumers who had taken the trouble to pursue a complaint through the financial businesses' in-house complaints process and on to the ombudsman service. The inflow of PPI cases has not yet abated.
how we have improved our casework and quality systems
Building on the foundations created by our organisational restructure last year, we have developed our new business model for case-handling. This combines updated in-house structures, resources and processes (to tackle our regular level of work in ways designed to improve flexibility, timeliness and consistency) backed up by some outsourcing of case-handling functions (to help manage the unpredictable, but increasingly frequent, spikes in the number of new cases).
Outsourcing (supported by enhanced quality-assurance measures) has been successfully pilot-tested. Though short-term costs of outsourcing are around double those of direct employment, outsourcing means we do not incur longer-term employment costs. It gives us access to alternative sources of well-qualified recruits, enhances our ability to respond more quickly to fluctuations in workload, and provides opportunities to explore new operational approaches and efficiencies.
In the medium term, these benefits should significantly reduce the comparative cost of outsourced versus direct employment, whilst providing for greater flexibility in our response to sudden changes in demand. So we expect outsourcing to feature as a permanent option within our business model. However, we plan for the substantial majority of our case handlers to remain direct employees.
Quality assurance plays a key role in our processes. We have implemented a programme to enhance our quality-assurance measures. This includes increasing the number of checks throughout the business process and management structure, a significantly enhanced quality-audit function, an increased number of quality-checkers, and the recruitment of additional senior executives to lead our work on consistency and quality.
We have also launched our new-generation computerised enquiry-handling and casework system. This has delivered improvements to the handling of cases, bolstering the quality and user-friendliness of the service, as well as 'future-proofing' our systems for the different types of case that might arise. It has, for example, enabled us to implement tailored solutions for handling the spikes of cases involving PPI and credit-card default charges.
Our recruitment of significant numbers of additional case handlers has been assisted by lessons drawn from analysis of the long-term outcomes of previous recruitment exercises. As a result of this review, we have put in place new procedures, not only at the recruitment and induction stages but also as part of our appraisal systems and competency framework.
We have also continued our sharpening the focus programme, training our staff to focus on the needs of our users – both consumers and businesses – with the aim of providing a service that meets or exceeds expectations. And we have upgraded our regular surveys of both consumer and business users in order to ensure that we hear clearly the views of those who use our service.
working with others
We are working with HM Treasury and the FSA on a number of matters, involving development of our jurisdiction in the following areas:
- 'Connected travel insurance' (sold by travel agents and tour operators as part of a package holiday) which comes within our compulsory jurisdiction from January 2009.
- Implementation of the European Payment Services Directive, which will bring new types of financial businesses within our compulsory jurisdiction from November 2009.
- The transfer of dormant bank and building society accounts to one or more reclaim funds, which will come within our compulsory jurisdiction during 2009.
- 'Sale and rent-back' (by homeowners who can no longer afford their mortgages and wish to stay in occupation as tenants), likely to come within our compulsory jurisdiction during 2009.
- Work towards de-regulating the insurance activities of freight-forwarders, likely to move to our voluntary jurisdiction during 2009.
We have also worked with the Department for Business, Enterprise and Regulatory Reform and the OFT on the extension of our consumer credit jurisdiction to debt administrators and those providing credit information services (sometimes known as 'credit repairers') from October 2008.
And, following the government's decision that the Financial Ombudsman Service and the Pensions Ombudsman should remain separate organisations for the time being, we have started work with the Department of Work and Pensions, and the Pensions Ombudsman, to explore ways of improving sign-posting for users and closer cooperation between the ombudsmen.
We have continued to work closely with the relevant regulators – primarily the FSA and OFT – so far as this is consistent with our independent roles and separate statutory responsibilities. This has included continuing to operate the wider-implications process, which is designed to manage any overlaps between our respective roles in a structured and transparent way.
Through this process we have worked with both the FSA and OFT on complaints about charges for unauthorised overdrafts, pending the outcome of the current litigation on the issue. We have worked with the FSA on complaints about PPI, and with the OFT on step-changes in credit-card and store-card interest rates on existing debt. We have also agreed and published a memorandum of understanding with the Office of the Information Commissioner.
We have assisted the FSA on a number of its policy initiatives. These include its treating customers fairly programme and its retail distribution review, which is considering the future shape of the market for the retail sale of investments and savings. On both these initiatives we have been able to contribute lessons learned from our dispute-resolution work.
We have continued to work with the European Commission and through FIN-NET – the European network of financial dispute-resolution bodies – to encourage a comprehensive network of redress bodies in the developing European single-market for financial services, so that consumers who buy financial services cross-border can be sure there will be someone able to step in if things go wrong.
And we have continued to assist others, both at home and abroad, who are increasingly interested in setting up out-of-court redress schemes modelled on our own – not only in relation to financial services but also in other sectors. This has included co-operation with ombudsman colleagues in the British Isles through the British and Irish Ombudsman Association (BIOA) and worldwide through the International Network of Financial Ombudsmen (INFO).
workload expectations for 2009/10
As yet, there is no sign of any reduction in the significant volume of cases about PPI and credit-card default charges. The 15,000 cases that we currently have on hold involving unauthorised-overdraft charges – as well as those cases on hold at banks and building societies as a result of the waiver issued by the FSA – still remain to be resolved in the light of future High Court decisions on the legal principles.
Extensions to our jurisdiction, described above, are likely to increase our workload. Perhaps more significantly we are already beginning to see an increase in the volume of cases arising from the effects of the financial turmoil and economic recession. For example:
- consumers are more likely to complain about investment-linked products where stock markets have fallen, and insurers are more likely to be tempted to delay or resist settlement of insurance claims when they are under financial pressure; and
- a range of cases can arise where individual consumers get into financial difficulty, whether in relation to a credit card, a personal loan, a business loan or the mortgage on the home in which they and their family live.
There have been some significant mergers between financial businesses, and there are possibly more to come. Experience tells us that such mergers, especially hasty ones, can sometimes divert the management focus and resources of financial businesses away from customer service and effective complaints handling – leading to an increase in disputes that consumers refer to us.
Many consumers are more ready to pursue complaints than ever before, sometimes through claims-management companies. Respect for the financial services industry has been undermined, not only by the financial turmoil but also by other issues – such as criticism from the Competition Commission and the FSA about the structure of the payment protection insurance (PPI) market and the way some financial businesses have been selling PPI.
In addition, large numbers of consumers who have received compensation for mis-sold mortgage-endowment policies or unauthorised-overdraft charges have drawn the lesson that they can take on financial businesses and win, that the customer/business relationship can survive, and that the regulatory system may not deliver redress unless they complain individually.
We expect to see further generic problems arising, potentially leading to surges of complaints about particular products. Regulators will need the power, the resources and the will to take effective action in order to resolve such problems. Otherwise (as in the past) consumers who do not complain will not obtain redress, and we will have to deal with cases from those consumers who do complain – with consequent effect on the resources we will require and the level of service we will be able to provide.
Taking all of these factors together, it is prudent to assume that the volume of new cases will be at a very high level during 2009/10, and possibly for some time after that. In order to resolve all these cases and meet reasonable targets for timeliness – even allowing for some fall in the number of new PPI cases – our central assumption is that we will need to resolve 165,000 cases in 2009/10. This will far exceed our previous record of 119,432 cases resolved in the year ended 31 March 2006.
future enhancements to casework resources and systems
Our working assumption is that our case load will remain at a high level for the foreseeable future. So we need to manage our resources flexibly and innovatively – in order to ensure that we can maintain the confidence of our users in the service we provide, irrespective of the case load pressures under which we may be operating.
We have built in flexibility to deal with the increased frequency of significant spikes of complaints – including through the use of outsourcing alongside increases in the number of our core staff. We will continue to keep our new organisational structure under review, to ensure both that staff are effectively deployed in line with changing caseloads, and that our organisational structure is sufficiently flexible to deal with the unexpected.
We will continue to review and adapt our recruitment and training systems in order to enable our caseworkers to work flexibly in a variety of areas and deal with new issues as they arise. And we will continue to invest in the evaluation and improvement both of the quality of our output and of the effectiveness of our quality-monitoring systems.
We will monitor and evaluate the effectiveness of our new business process, and adapt it as necessary, in line with changing needs. This will include deploying tailored case-handling systems where this is more cost-effective for certain categories of case and better delivers the quality of service that users expect.
We will exploit the development potential of our new case-handling system, which was designed to be 'future-proof' for the different types of case that might arise. This may involve closer integration with our knowledge-management systems, helping to improve our systems for delivering quality and consistency.
We will enhance our regular surveys of our users – both consumers and businesses – to ensure that our efforts are focused on those areas of greatest importance to those who use our service. And, through our ongoing sharpening the focus programme, we will explore further ways to personalise our service, and ensure that we communicate our processes effectively.