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The Financial Ombudsman Service has been inflating its reported success rate for complaints by a third, giving consumers false expectations of the likelihood of a complaint succeeding, according to a new study.
Researchers at Warwick university said around 33 per cent of Fos cases they studied were so-called “inflationary upholds”, where the ombudsman rejects the substance of the complaint and compensation claim, but records the decision as upholding the complaint.
“Our findings suggest a significant gap between the Fos’s reported figures and the actual outcomes experienced by complainants. This could undermine public trust in an essential consumer protection body,” said the academic who led the study, and wished to remain anonymous.
Warwick’s study looked at a random sample of 99 cases that the Fos claimed as “upheld” between May 1 2022 and April 30 2023, all of which are publicly available on the Fos’s website.
The researchers defined inflationary upholds as decisions where the ombudsman rejects the complaint in all but name — either determining that no additional compensation should be provided, or that “tokenistic” compensation should be granted, but still records the decision as “upheld” in favour of the complainant.
While the figure of inflationary upholds was lower for consumer credit — around 15 per cent — it rose to 43 per cent for pensions and annuities, and 48 per cent for banking and payments.
The Fos was set up by the UK parliament in 2001, and helps to settle complaints between customers and financial businesses. The service is free to consumers, 1mn of which contact the organisation annually regarding issues relating to bank accounts, mortgages, debt collection, loans and financial advice, among others.
Complaints to the Fos rose 40 per cent year on year for the first half of this year, rising from 93,114 to 133,019.
The report comes amid plans for reform of the system for consumer redress in the financial sector after a potential windfall of compensation claims for banks.
Senior UK judges recently ruled in favour of consumers who believed they paid too much for car finance products, prompting warnings that it could turn into a repeat of the PPI crisis, which cost the UK’s banking sector around £50bn.
A group of impacted lenders have held “urgent talks” with the Treasury according to the Financial Times, warning of potential turmoil in the motor finance industry.
The researchers at Warwick said when looking through the cases, they did not give a view on the merits of a complaint or whether an award should have been given in line with the amount claimed — but instead focused on whether there was a “[big] discrepancy and rejection of most of the substantive complaint” where it would be misleading to describe the complaint as being upheld.
In one reviewed case, a woman — Ms L — complained that HSBC’s UK bank had unfairly blocked and closed her account, leading to her being unable to pay bills and mortgage. She complained to the Fos, and an investigator concluded that HSBC should not have closed her account — which HSBC agreed with, offering £200 compensation to Ms L for the trouble and upset caused, which the investigator thought was fair.
However, Ms L disagreed, and asked for the case to be escalated to an ombudsman, who concluded that the issue “clearly caused Ms L trouble and upset […] so I realised she will be disappointed by my decision. But having looked at all the evidence and circumstances of this complaint, I haven’t found grounds to increase the level of compensation”. This case was classified as upheld.
Warwick’s researchers said: “It is our view that the classification of this case as upheld is very misleading.”
In another case, Mr B and Mrs B complained that Royal & Sun Alliance Insurance Limited unfairly withdrew an offer to pay an unsatisfied judgment under their contents insurance policy. Ms B won a personal injury case but did not receive payment from the defendant, and RSA insurance initially confirmed coverage but later retracted this, offering £100 for the error. Ms B claimed negligent misrepresentation by RSA, leading to severe financial loss, but the initial Fos investigator found RSA’s compensation offer was fair.
Mr and Mrs B disputed this decision, which was then taken to an ombudsman, who also believed that the compensation offered by RSA was fair, but the case was recorded by the ombudsman as upheld, despite the Fos investigator initially concluding that the case should be registered as not upheld.
The Fos said it strongly refutes the claims made by the research, highlighting that the 99 cases examined represent less than 0.05 per cent of its annual caseload, and 85 per cent of all cases in the period between May 2022 and April 2023 were investigated and resolved informally by investigators, with these cases not appearing in public online.
It added that “upholds” are important because they enable business to learn from its decisions, which are legally binding.
“A response from our free, easy-to-use service helps empower consumers who can feel confused, stressed and out of their depth. We bring closure to difficult situations, providing legally binding decisions that enable both parties to move on,” it said.
“Each year the Financial Ombudsman Service helps thousands of people settle disputes with businesses, awarding millions of pounds back in redress and compensation.”
RSA and HSBC declined to comment.