I’m not sure how many of you remember the ‘good old days’, when clients appreciated what you did for them and never complained. This was obviously because of the exemplary service you provided but was it also perhaps because there was no point in complaining? If your gripe was regarding mortgage or general insurance (GI) advice, who did you complain to? As head of compliance for a large lender in the 1990’s I remember dealing with the clients of an intermediary who felt their only recourse was to complain to the lenders who “had given him some credibility by accepting business introductions from him”.
In 1998 The Mortgage Code, which had applied to lenders from July 1997, was applied to intermediaries, along with the Mortgage Code Arbitration Scheme. The scheme was managed by ACAS on a case fee basis, paid by the intermediary, and had no adjudication or administration staff of its own. Remarkably, in the six years or so of its existence, the scheme heard a mere 700 complaints, dealing with a total of 187 complaints in 2004 up to ‘Mortgage Day’ on 31 October. Accepting there was a lack of robust opportunity for redress, it was still evident the industry created little consumer detriment and few clients seemed to have cause for complaint.
In 2002, when CP98 and the new mortgage regulation regime was under discussion, I attended a Council of Mortgage Lenders meeting with Susan De Mont of the FSA. At this meeting I queried the rationale for expensive regulation on the lines of: ‘What exactly is this piece of regulation intended to protect the consumer from, what is the consumer detriment that can be produced as evidence of the need for statutory regulation of the industry?’
The FSA response covered principally non-mortgage issues such as the already-regulated endowment insurances and accelerator plans as additional repayment vehicles. I felt quite smugly satisfied with my argument against regulation and a statutory complaint scheme. However, I was tempting fate as just a few weeks later I dealt with one of the bank’s borrowers who had suffered at the hands of a mortgage intermediary. £20,000 additional borrowing for debt consolidation turned into £1,600 after the adviser had provided the solicitor with authority to pay his fees and charges from the new loan proceeds, and then invoiced the solicitor for single premium Accident Sickness and Unemployment (ASU) insuarnce cover, loan arrangement fee and the fee for setting up an accelerator mortgage plan, none of which had been disclosed to the client. The adviser then disappeared off the map and the complaint couldn’t go to MCAS as both parties were not available.
FOS
Since October 2004, mortgage advice, arranging, etc has been regulated under FSMA 2000, extending to GI in January 2005. Among the benefits to the consumer is the right to complain to the Financial Ombudsman Service (FOS); a body funded by all of us in the industry through annual fees. As an industry we are now subject to a regime that has a staff of 1,000 who dealt with 115,000 complaints in 2005 alone (Remember that figure of 700 complaints to MCAS in six years?)
The above figures were obtained from Ombudsman News, a riveting read that can be found on the FOS website and which is now up to issue 50. Actually, it really is a good read and I strongly recommend it to you if you want to keep up with current issues and FOS thinking.
A review of the back copies of Ombudsman News since October 2004 suggests most of the current non-investment and bank service complaint workload is around GI. In particular, issues arising from non-disclosure on proposal forms and inadequate disclosure of insurance policy terms, conditions, exclusions and excesses by intermediaries, leading to claim failure, seem to feature.
The majority of complaints regarding mortgages seem to be against lenders, particularly regarding policy and clarity of disclosure of fees and charges. However, I don’t think there is much room for comfort or complacency. Remember, the FSA’s definition of a complaint is ‘any expression of dissatisfaction’.
Areas to consider
Let’s consider some of the areas where we might just find ourselves on the wrong end of a complaint and correspondence with the Ombudsman.
What about the customer who could have got a debt consolidation deal through a further advance from their existing lender? If the borrower is in good standing with their lender and the current rate is competitive, that might be the best option. I know we are unlikely to get paid a procuration fee on a further advance but that must not be a consideration when giving advice; and we could, of course, charge a fee for our sound, professional, advice. I do wonder just how many remortgages going through the industry’s hands since October 2004 could stand scrutiny based on the above criteria.
I’ve mentioned the preponderance of GI complaints. We already know that single premium ASU is an issue with the FSA and FOS. But what about the client who didn’t buy ASU or mortgage payment protection insurance (MPPI), despite our recommendation, who then becomes redundant? Customers can and do complain they would have bought protection (isn’t hindsight a wonderful thing?) but we didn’t make the benefits and the basis of our recommendation strong enough and clear enough at the point of sale. There is a case to answer here believe it or not.
This is not the only example of a potential complaint and cost where you didn’t make a sale. An intermediary of my acquaintance had a client who accepted his recommendation and then approached the lender and agreed a deal direct with the recommended lender. He was shocked when I told him he would still be responsible for the advice, even though he lost the deal, if the customer subsequently decided the lender and product wasn’t the most suitable and claimed he was still acting on the broker’s recommendation when he went direct.
Still on the subject of GI; when making, say, a buildings and/or contents policy sale, do you carefully check the cover you are recommending really is as good as, or better than, the cover you are replacing – that’s the level of cover as well as price? If not, just wait for the first claim to be declined under the new policy, which would have been accepted by the previous insurer. And remember you do have to give some significant oral disclosures on policy terms and conditions, exclusions and excesses, and the bulk of claims referred to the FOS do seem to be around this issue and the lack of disclosure.
I’m also waiting for the first complaint from the client who works out that the deal the broker recommended and they completed on actually cost them a few thousand pounds more in total amount payable than another deal available. The broker may have used other criteria, such as speed of service, but if the client claims that was not the main need for them there is a case to answer. The broker might just find themselves defending a complaint that their recommendation was influenced by the procuration fee rather than the FSA’s requirement to choose the cheapest product.
If you think this article was intended to disturb, you’re right. I’ve lived with the FSA’s rules on complaints and the FOS for some years now and, as the regulatory regime matures, I have no doubt we will start to see complaints on the above lines and any number of similar issues.
Reducing the risk
However, we can reduce the risk and impact of complaints. Record every complaint, no matter how minor and quickly you resolve it (and do attempt to resolve it). All complaints are ‘recordable’, it is just that they aren’t all ‘reportable’ on the RMAR. If you can resolve the complaint within two working days, record it but don’t report it. When the FSA come to call on you it will be impressed with your attitude to ‘Treating Customers Fairly’ (TCF) and, anyway, they may be cynical at the sight of a nil report on your complaints register.
Use suitability letters. There really is no better defence than a clearly documented ‘Reasons Why’ with clear evidence that it was received and understood by the client. We aren’t infallible, except compliance of course, and a clear explanation of why we recommended a particular product will go a long way to mitigate our defence. Lack of evidence will almost certainly lead to the FOS on the balance of probabilities (a nice lawyer’s phrase) accepting the client’s version. Also, if you aren’t comfortable enough with your recommendation to stand by it in writing, then you might just question your motives and reasons for the recommendation.
Finally, clients are not whiter-than-white so don’t be afraid to fight the vexatious complainant on principle, if you are sure of your grounds. There will be clients who will hope you will pay out minor sums for vexatious grievances, because it’s cheaper for you to do so rather than letting it go to the Ombudsman, and pay their fee. Fighting a principle now could save you and the rest of the industry money in the long term.
Mike Davies is head of compliance at BDS Mortgage Group
