If Amigo’s proposed Scheme of Arrangement goes forward, customers with complaints at the Financial Ombudsman (FOS) will have them returned to Amigo to resolve in the Scheme.
My guess is that there may be 10,000 Amigo cases at FOS, possibly a lot more.
If these customers would have had a cash refund, then they are likely to only get paid a very small amount of their redress. Some of them have had complaints at FOS for many months and they may be understandably upset that their cases were not resolved.
This article looks at what can be done to speed up FOS complaint handling in future, to prevent this sort of problem affecting so many customers. And it also considers what will happen to FOS fees if the Scheme goes ahead, because FOS may well be owed more than £7million.
This is the third of three articles looking at some of the implications of Amigo’s proposed Scheme:
- The effect of a Scheme on vulnerable customers.
- Possible effects on the bad credit market.
- How Financial Ombudsman (FOS) decision making can be speeded up.
Why do cases take such a long time at FOS?
It would be interesting to hear FOS’s views on this, but here are my thoughts.
1. Firms are not upholding complaints in line with FOS decisions
The Financial Conduct Authority (FCA)’s DISP rules say that firms need to learn from FOS decisions and apply them.
This has been a consistent problem with affordability complaints for years. Wonga, QuickQuid, ICL, Sunny, Provident and many smaller firms have all persisted in rejecting strong complaints or making very poor offers. As has Amigo.
When a firm is losing over 50% of its cases at FOS, then it needs to change its internal complaint handling. If it is losing over 80% of cases, as is the case for guarantor loans and home credit, then a root and branch reform is urgently needed.
FOS is supposed to be the place where difficult or marginal complaints are resolved – it is not meant for handling thousands of cases that the firms should have dealt with themselves. The FCA needs to step in here and tell firms that poor complaint handling is not acceptable.
2. FOS needs to staff up properly for affordability complaints
FOS has seen affordability complaints take off in the last few years but it isn’t clear that it has switched staff over and trained them up in sufficient numbers.
The general trend in FOS towards a generalist system may not be helping here, as the Treasury Committee has asked:
Given the foreseeable shift away from PPI cases towards more complex cases, why did the FOS move towards non-specialist investigator resourcing in 2016-17, and how will this be reversed to deal with more complex cases?
3. There is a financial incentive for firms to go slow on FOS cases
But one of the main frustrations for customers looking at the slow progress of their FOS case is the length of time firms take to deal with it. FOS appears to have no effective ways to force firms to provide information and responses promptly.
The FOS fee is invoiced when the case is complete. This gives a firm in financial difficulty an incentive to delay at every stage of FOS case handling:
- firms can take many months to simply send over their case file at the start;
- they don’t respond to adjudicator questions promptly;
- adjudicator decision are too often just ignored, not even rejected. FOS doesn’t want to force cases through an Ombudsman-level decision unnecessarily so firms are given extension after extension, to the frustration of customers.
I think FOS needs to change this so firms are incentivised to complete cases promptly.
I do understand the FOS preference for a simple system charging the same if a complaint is upheld or rejected. For FOS to get a smaller or larger fee depending on its decision feels unfair and undesirable.
But the current system could be improved by:
- invoicing firms as soon as a case arrives at FOS;
- setting out a scale of fines paid directly and immediately to the customer, not to FOS, for delays. eg £100 if the case file is not provided within six weeks, and a further £100 for every further two-week delay after that.
- reversing the current assumption that a firm who doesn’t respond to an adjudicator decision is deemed to have rejected it. Instead a firm should be deemed to have accepted an adjudicator decision if it has not replied with reasons for rejecting it within the set time limit. A two-week extension could be allowable on request by the firm for a complicated case.
What happens to FOS fees in a Scheme?
FOS fees weren’t mentioned in the Amigo announcement – that just refers to customers.
Perhaps Amigo is expecting to pay FOS in full in the Scheme. But it seems more likely that they would want FOS to be included within the Scheme to save money… in administration, FOS would be just another unsecured creditor and would receive the same low percentage pay-out as the customers with redress claims.
But if Amigo is carrying on lending, it would be an undesirable precedent for them to be able to walk away from paying their FOS fees.
The costs FOS incurred in handling Amigo complaints would then have to be paid effectively by the other authorised firms, which would include Amigo’s own competitors. This is a further competition issue that arises from this scheme in addition to the ones I looked at in my previous article Amigo Scheme – the implications for the bad credit market.