The Consumer Finance Association (CFA) has responded with a blog Reflecting on the FOS Annual Review. The CFA is the trade association for payday lenders, so you won’t be surprised they are not happy… Mandy Rice-Davies’s phrase comes to mind:
But let’s look at what the CFA has said (in italics) and see what lies behind their comments and the rise in FOS payday loan affordability complaints. Sorry for all the acronyms!
The figures published show a disappointing increase, largely driven by Claims Management Companies (CMCs) and we continue to see many a complaint that has no foundation.
I do understand it is incredibly annoying for a payday lender to be sent complaints by a CMC about someone who is not even a customer. I hope the Financial Conduct Authority (FCA), which has started to regulate CMCs, comes down hard on this. Dealing with these spurious complaints delays the complaint handling for genuine customers.
But most complaints that are going to FOS are upheld – the Ombudsman agrees that some of the loans were unaffordable and interest should be refunded. If a large number of CMC complaints had no foundation, FOS uphold rates would have fallen a lot, and they haven’t.
Regardless of who submits the complaint, it is the lender that must pay a case fee to the Financial Ombudsman, win or lose.
The level of FOS fees must be uncomfortably large for many lenders. But the remedy for that is in their own hands. If lenders learned from FOS decisions (as the FCA’s DISP rules say they should) and applied FOS’s approach when replying to a customer’s complaint, then the number of customers going to FOS would be massively lower and the lenders would have much lower fees and lower complaint administration costs.
there is no deterrent for CMCs not to submit incomplete or fraudulent complaints… One leading lender also found a quarter of the complaints were from people that had never had a loan with that company… As a trade association, we continue to report instances of poor behaviour from CMCs to the relevant regulators and engage closely with the FCA on the problems lenders are seeing. While the FCA took over regulation of CMCs on 1st April, there are still many firms not acting in the best interests of the customer.
From April 2019 there is a very big deterrent – FCA regulation! And complaints about CMCs will be able to go to FOS, so customers who have been badly advised or had poor service will themselves be able to seek compensation and then the CMCs will also be paying FOS fees. I am planning to write an article about how to complain about a CMC.
I agree that many CMCs give a poor service and are shockingly expensive. It is a shame when the lower cap on CMC rates for PPI was brought in that the same cap was not also applied to payday loan affordability complaints, which to the CMCs are a simple “tick box – generate template email” service.
As an example, see this Ombudsman decision where the CMC has failed to answer FOS questions. This delayed the complaint by probably 6 months and meant the customer only received a refund on 2 loans, whereas with more infomration another 4 loans may well have been refunded.
But once again payday lenders could tackle the root cause of this problem, not just complain about CMCs. If lenders analyse their past lending for cases where the loans are very likely to be decided by FOS to be unaffordable, they could proactively give a refund to those customers. Then there would be little need for CMCs at all. And it would result in happy customers, massively fewer cases going to FOS and a happy FCA.
From recent discussions with members, we also have concerns as to how the FOS had calculated some of the figures included in its annual review.
No doubt FOS will look into any complaints about this, but so far as I know FOS counting follows FCA guidelines, for example in how withdrawn complaints are treated.
The uphold rate is an important measure as the FOS uses this as an indicator of how well firms are handling their complaints.
I agree. Uphold rates for payday loan affordability complaints are very high compared to uphold rates on other non-PPI consumer credit lending. A high uphold rate suggests the lenders are not handling complaints well, as too many are not being settled directly with the customer by the lender.
FOS should be there as a backstop, to consider marginal situations or difficult cases. The current situation where lenders are rejecting extremely strong complaints is absurd. Here are a few recent Ombudsman decisions as examples:
- Sunny offered no refund to a customer who had taken 19 loans in a period of 5 months
- Lending Stream offered a refund of £9.60 to a customer who had taken 54 loans in less than 3 years
- QuickQuid refuses to refund large number of loans taken after April 2015.
If CMCs were sending very large numbers of fraudulent complaints, you would expect to see the uphold rate fall a lot over the next year. But as the backlog of complaints about over 6 year loans and long chain loans – which are likely to have a very high uphold rate as long chain loans are often the strongest cases – unwinds, that may push uphold rate up.
Our members are concerned about the quality of decisions made by the FOS. We believe this, coupled with an extensive backlog of cases, makes it very difficult for consumers and businesses to have trust in what the FOS is saying.
I think it is hard to argue about the quality of FOS decisions. FOS has been making very similar decisions about payday loan complaints now for years and explained in great detail the OFT and FCA regulations and the approach FOS uses.
FOS decisions are in general consistent across similar cases, it has published technical guidance on loans over 6 years and long chains, and FOS decisions appear to mirror the direction of the FCA’s thinking, see The FCA’s High Cost Credit supervision priorities.
It seems more likely that CFA members do not like FOS decisions rather than their quality is poor.
It is notable that no lenders have decided to seek a judicial review, including Wonga and Wageday Advance who went into administration because of the costs of payday loan refunds and complaint handling.
I would say that customers overall have a lot more faith that FOS will take a good decision than that they will get a fair hearing for their complaint from a payday lender.
The CFA believes a wider review of the FOS is necessary to ensure it can meet its operational demands while maintaining impartiality and fulfilling its remit.
I think some extra resourcing would be a good idea to speed up FOS complaint handling. But it is hard to blame FOS for not anticipating and staffing up to handle a 130% increase in payday loan complaints. And the large backlogs have in very large part been caused by the refusal of some payday lenders to accept the decisions FOS has been taking.