On April 6, the Financial Ombudsman Service will bring the handling of consumer credit complaints under its jurisdiction. Lenders and brokers of consumer credit – including secured second charge mortgages – that do not already fall under compulsory jurisdiction will become part of the FOS scheme under its consumer credit jurisdiction in accordance with the provisions of the Consumer Credit Act 2006.
In reality, FOS already handles a substantial proportion of unresolved consumer credit complaints where the credit providers are regulated by the Financial Services Authority and fall under its jurisdiction.
This applies to the majority of secured second charge mortgage lenders that are already FSA-regulated for their first charge lending and also to many secured loan brokers who are regulated for general insurance business and any first charge mortgage business they may transact. These firms will stay within compulsory jurisdiction. The rules for the CCJ are harmonised with the FOS’ existing jurisdictions to provide a simple and consistent regime.
Whether or not a firm is entering the FOS’ jurisdiction for the first time, April 6 provides a focus for all firms to ensure their complaints handling processes comply with the rules.
These rules are set out in the FSA Handbook, and will be modified as of April 6 to include the CCJ as published on the FSA’s website. However, if you want an advance look at the new format this can be found on the FOS website in Annex B of the December 2006 feedback statement on the consultation regarding rules for the CCJ. This means that for the first time, some firms selling secured loans to the public will have to formalise their complaints handling procedures to comply with the FSA procedures the rest of the industry has had in place since October 2004.
In brief, this has several implications. First comes the question of professional indemnity insurance. FSAregulated firms must have it in place but not unregulated firms entering the FOS’ CCJ. Nevertheless, all such firms should consider the benefits of this cover since dissatisfied customers are more likely to seek redress through the FOS than through the courts. And a big compensation ruling could threaten their ability to trade.
Next, firms need to set up complaints procedures that adequately cover the requirements of the rules and allocate responsibility within firms for the handling of complaints. Customer-facing staff must be trained to recognise a complaint from whatever source. They must understand and follow the rules and their own firm’s procedures for compliance.
Although the FSA’s rules for record-keeping and reporting do not apply to the CCJ, all firms will naturally have to keep adequate records to prove they are following the rules and to provide evidence to support their side of the dispute should a customer complaint reach the FOS.
Consumers must be made aware of their right to complain and a version of a firm’s complaints procedures must be handed to customers at the point of a complaint being made or when and if it is requested. Customers must also be told about their right to refer their complaint to the FOS if it is not resolved within statutory time limits. The path and timeframes of complaints handling are as follows:
• If a complaint is not settled the day after it is made, it must be acknowledged in five working days.
• Within four weeks, a firm must issue a final response letter or a holding response letter.
• If a final response is not made within eight weeks and a customer is not satisfied with the reasons given for further delay they may refer the case to the Ombudsman.
Most experts on customer care agree that handling complaints effectively strengthens customer loyalty and provides valuable management information on how to improve service, so firms that are new to the complaints handling regime can look forward to these benefits to reward them for the extra administration work and fees.
The Association of Finance Brokers and the Association of Mortgage Intermediaries both publish factsheets on complaints handling, available to members from their respective websites. Further information, including a brief guide for adviser firms and frequently asked questions, can be found on the FOS website, as can back copies of FOS newsletters that contain useful information.