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FOS complains about 'entrenched', 'legalistic' positions

18 May 2011

In celebrating the achievement of dealing with a million frontline enquiries, Chief Ombudsman, Natalie Ceeney notes in today's annual review for 2010/11 that there are encouraging signs of improvements in (non-PPI) complaints handling.

In the body of the report, however, the FOS expresses disappointment at businesses "taking a more legalistic approach to consumer complaints", citing the significant increase in the number of cases referred to an Ombudsman to make a formal decision.

Although accepting that the FOS provides an alternative to court litigation, it does infuriate financial services firms that the FOS seems to operate as an extra-judicial, consumer-focussed body rather than a quasi-judicial, alternative dispute resolution tribunal.  It will frustrate firms further to hear criticism of their reliance on their legal rights, especially when the maximum award limit is likely to increase to £150k next January.

In fact, the FOS reports that the majority (62%) of referrals to Ombudsmen for final decisions were made by the consumer complainant and, in over 8 out of 10 final decisions, the Ombudsmen reached the same basic conclusions as the Adjudicators before them. Most referrals related to pensions and investments, reflecting the complexity of the disputes, the amounts at stake and the socio-demographic background of the consumers involved. This evidence points to a different conclusion than that the respondent firms are taking an unreasonably entrenched and legalistic approach.  It suggests relatively sophisticated, disgruntled investors with substantial losses are pursuing complex complaints as far as they can.  Rather than 'disgusted-of-Tunbridge-Wells', FOS data suggests firms are dealing with 'over-65-of-Ladywood-Birmingham'!

I do not read this annual review as evidence of firms taking entrenched, legalistic positions. The statistical evidence suggests that consumers are mostly responsible for fighting a case all the way. With a 20% chance of an Ombudsman overruling an Adjudicator, firms should continue to pick their fights and defend their legal rights.