Financial Ombudsman Service Independent reviewer calls for blanket response by FCA to mis-selling claims, but is the review too lenient?

Following an undercover investigation carried out by Channel 4 Dispatches programme, the government called for an independent reviewer to internally investigate FOS and the issues raised in the programme.

The review was carried out by former executive director of consumer rights organisation Which?, Richard Lloyd. The 53 page review concluded that although the service did need to improve, there was no evidence to support claims there is institutional bias against consumers within the service.

Among the allegations was that staff at the service routinely found in favour of the banks, because it was easier to disappoint the consumer than deal with the banks. However, in his review, Lloyd said consumers and firms could be confident the service was not institutionally biased against them.

When addressing the issue of rush decisions being made to meet targets Lloyd said: “The data shows no significant correlation between the reduction in pressure and uphold rates, in fact there was a slight reduction in uphold rates. This suggests that overall, target pressure did not incentivise caseworkers to reject cases in favour of businesses”.

After watching the Dispatches documentary, it is not a leap to suggest Lloyd’s review is fairly lenient in his analysis of FOS and the issues raised by the programme. However, he does spark some criticism of the service and recommend reform to pretty much every other area of the FOS, from its casework handling, to staff training, quality assurance, governance and management capability; pretty much covering all areas of the service other than consumer bias!

Lloyd also warned that while FOS was correct to strive for efficiency, staff have begun to believe this is the priority of management instead of quality.

The review also highlighted that investigators needed more knowledge, especially if they are new to the role: “As it adapts its casework model, based on the investigation model which relies on staff being skilled across a range of different types of cases, the FOS has recognised that where these higher risks arise, case-handlers require more support, or that the problem needs to be looked at by an experienced product expert with up to date knowledge. New investigators can lack knowledge, confidence and consistent exposure to complex problems, and so more often use internal helplines and product specialists for advice.”

The review also discussed the importance of FOS and its decisions commanding the trust of both consumers and financial service companies, the decisions being made should be fair and unbiased.

Lloyd also tackled the issue of large organisations’ reluctance to make decisions on mis-selling cases and simply ‘passing the buck’ to the Ombudsman service to settle the dispute.

What I would rather see is the regulator imposing good redress schemes on firms that have harmed, caused consumer detriment on a large scale,” Lloyd said.

Lloyd criticised the way a “huge” number of PPI complaints were “dumped” on the Ombudsmen over a short period of time, leading to ombudsmen feeling “it was all about getting more cases solved … all about productivity and less about quality”. One of the main accusations that the FOS faced following the Dispatches report, was that adjudicators were rushing through cases in order to meet quotas.

I think what has been missing in the debate about the FOS is that there is a bigger, in my view more effective, way of tackling these kinds of systemic or widespread consumer harms earlier,” Lloyd said.

That is, for the FCA to use that power better to force the firm to put things right in the first place, proactively contacting its customers, saying, ‘This is what we are going to do to put it right’, [rather] than to wait for the individual complaints to work through the system and potentially to end up at the FOS, that then has to scramble to work out what its position would be.

“We are addressing the solution too far down the line.

Caroline Wayman, chief ombudsman, said: “We are grateful to Richard Lloyd for conducting such a thorough review.

“We’ll be considering carefully what it means for our service, keen to learn from the past so we can do things even better in the future. We will publish an update on our progress by the end of the year.