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ombudsman news

issue 108

March/April 2013

complaints made by smaller businesses

Most people who bring us complaints do so in their personal capacity as individual consumers. However, we also receive complaints from smaller businesses, charities and trusts.

We can look at complaints brought by "micro-enterprises" - an EU term covering smaller businesses. To be able to bring a complaint to us, a smaller business must have an annual turnover of up to two million euros and fewer than ten employees.

Sole traders and people running small businesses don't always register a complaint with us as a business dispute. These people often see the problems they are facing as personal rather than commercial. So in practice, although our statistics indicate that around 5,000 complaints from small businesses each year, it may actually be a slightly higher proportion than that.

Small businesses have different degrees of knowledge and experience of dealing with financial matters. Some businesses may be relatively small, but have expertise of dealing with financial matters - and may have arrangements in place for getting financial or legal advice.

When we look into complaints from those sorts of businesses, we would usually expect them to have approached their affairs in a way that reflected their knowledge and experience.

But smaller businesses can also be local hairdressers or window cleaners - who usually do not have advisers and who might have less experience of dealing with financial or legal matters. We take this into account when we are dealing with cases from businesses like these.

This selection of case studies illustrates some recent banking and insurance complaints made by the owners of smaller businesses. Many of the issues that arise in these complaints are the same as those we see in complaints brought by individual consumers - for example, problems transferring money from one bank account to another, or disputed insurance claims.

But complaints from small businesses raise different issues too - for example, damage done to a business's reputation, or problems with the company a business used to supply and run card payment services.

The case studies that follow illustrate the wide variety of the cases we see - and some of the things we take into account when we are dealing with them.

issue 108 index of case studies

  • 108/9 - small business owners disagree with bank's decision to convert their overdraft debt into a loan
  • 108/10 - insurer rejects claim because keys were left in vehicle
  • 108/11 - small business complains that it did not give permission for "merchant acquirer" to refund a consumer
  • 108/12 - small business complains that insurer's agent damaged its reputation
  • 108/13 - small business complains that insurer rejected claim wrongly
  • 108/14 - business owner complains that bank did not do enough to help when he made a mistake transferring money to his business account
  • 108/15 - business owner complains that bank failed to acknowledge the distress it had caused

108/9
small business owners disagree with bank's decision to convert their overdraft debt into a loan

Mr and Mrs T ran a small business from home trading rare and antiquarian books. Because their business was highly specialised - and depended on them sourcing the right books and finding the right customers - they were finding it difficult to manage their cash flow.

They regularly went overdrawn on their business account, and sometimes exceeded the limit they had agreed with the bank. This went on for several months.

Eventually, Mr and Mrs T's bank wrote to them and explained that it wanted to convert their overdraft facility into a loan that could be paid off in monthly instalments. Mrs T rang the bank to tell them that she and her husband were happy with their existing business banking arrangements - and that they didn't want to take out a loan.

The bank explained to Mrs T that their overdraft had become a "static debt" - rather than a facility that was dipped into every now and then to help with cash flow. The bank also pointed out that Mr and Mrs T would end up paying less - because the loan had a lower interest rate than their overdraft, and because they would not be paying additional charges for exceeding their overdraft limit.

Mr and Mrs T complained. They said that the bank was showing an "inflexible attitude" to lending, and that it had fundamentally misunderstood the nature of their business.

When the bank rejected their complaint, Mr and Mrs T decided to bring the matter to us.

complaint not upheld
We looked closely at the bank's records to find out more about the decisions it had made on lending to Mr and Mrs T's company. We also looked at the way the business had used its current account - including how it had managed its overdraft facility.

It was clear that the bank had become concerned about the business' dependence on its overdraft facility - and had wanted it to start repaying its debt. We though this was reasonable - especially given the fact that the Mr and Mrs T would have been paying less to borrow the money.

We also listened to Mr and Mrs T's side of the story, and we looked carefully at the evidence that they supplied. But we did not agree with them that the problem had been caused by the bank's failure to understand their business. And we did not think that any further discussion with the couple - or additional information about their business - would have changed the bank's lending decision.

Banks and business customers can often discuss and negotiate lending arrangements - but that doesn't mean they will always agree.

We explained to Mr and Mrs T that the bank had been entitled to make its own commercial decision about the degree of risk it was prepared to take in lending to their business. In these circumstances, we did not uphold the complaint.

108/10
insurer rejects claim because keys were left in vehicle

Mr S had a haulage business, which was based in a trading estate. Unfortunately, the company had a truck stolen from the yard outside its offices. The theft was caught on the trading estate’s CCTV. The footage showed a man wearing a high-visibility jacket walking into the yard and driving off in the truck. The trading estate’s security guard had thought the driver was an employee, and had opened the security barrier to let him out. Later that day, it came to light that one of Mr S’s employees had left the key in the ignition.

Mr S made a claim under his business’s insurance policy to cover the loss of the truck. But the insurer rejected the claim, pointing out that the policy said “We will not cover loss of, or damage to, Your Motor Vehicle or Trailer arising from Theft if Your Motor Vehicle has been left unattended with the ignition keys in or on Your Motor Vehicle or Trailer.”

Mr S complained to the insurer. He said that he had taken all reasonable steps to safeguard the truck - and pointed out that the trading estate was covered by CCTV and was protected by security. He also explained that it was company policy not to leave keys in vehicles, and that the member of staff involved was no longer working there. When the insurer refused to change its position, Mr S decided to refer the matter to us.

complaint not upheld
The fact that the key had been left in the truck’s ignition was not in dispute. We accepted that Mr S had taken steps to try and stop his employees leaving keys in vehicles. But ultimately, the haulage business was responsible for the actions of its employees. And even though the trading estate was protected by security, a man had been able to walk in and take the truck without being challenged by the security guard.

We asked the trading estate to give us the relevant CCTV footage. When we looked at it, we noted that nobody had been near the truck when it was stolen. So we concluded that it had been left unattended.

We did not think the insurer had acted unreasonably in turning down the claim, and in these circumstances, we did not uphold the complaint.

108/11
small business complains that it did not give permission for "merchant acquirer" to refund a consumer

Mrs R ran an online clothing and gifts business. One of Mrs R's customers ordered a cardigan, but when it arrived it was a different colour from the one she had ordered. The customer contacted her bank to ask it to get her money back through "chargeback" - a process that allows a consumer to ask their card provider to reverse a transaction in certain circumstances if there is a problem with something the consumer has bought.

Mrs R's "merchant acquirer" - the company that supplied and ran the card payments system for her business - refunded the customer's bank account and then debited that amount from Mrs R's business account.

Mrs R was unhappy with the merchant acquirer's decision to refund the customer. She complained to her bank. She pointed out that the customer had not returned the item, which her own refund/returns policy said a customer must do when they asked for a refund.

But the merchant acquirer told the bank that Mrs R's business had not acted in line with its terms and conditions on chargebacks, which said that "the refunds/returns policy must be made clear to the customer before payment is requested". The merchant acquirer said that in these circumstances, it had no choice but to refund the customer.

Mrs R was unhappy with this response, and decided to refer her case to us.

complaint not upheld
We looked carefully at the merchant acquirer's terms and conditions. We noted that when Mrs R's business had appointed the merchant acquirer, it had agreed to the rules on chargebacks. So Mrs R's business had agreed that it would make its refunds/returns policy clear to a customer before the customer paid for an item.

We looked at the website of Mrs R's business. Although most of the website was clear and well laid out, we noted that its refunds/returns policy was not set out clearly on the payments screen. The policy was included in the section on the company's standard terms and conditions - and unlike many websites, there was no tick box asking the customer to confirm that they had read them.

The relevant chargeback scheme rules said that for a company to refuse to make a chargeback to a customer, it must show evidence that the customer had seen a refunds/returns policy. In this case, the merchant acquirer was not satisfied that the refunds/returns policy had been brought to the consumer's attention. So we concluded that it had acted reasonably when it had refunded the consumer.

In these circumstances, we did not uphold the complaint.

108/12
small business complains that insurer's agent damaged its reputation

Mr B had recently set up a nursery school. It was the first nursery to open in the village - and was proving popular with the local community. When the nursery had been open for six months, Mr B decided to change his insurance provider - and got in touch with a new insurer to discuss his needs. The insurer sent a surveyor to carry out a risk survey of the nursery premises.

On the day the survey was due to take place, the surveyor was waiting outside the nursery for someone to let him in. While he was waiting, the insurer rang him to tell him that the nursery had gone into receivership - and that the survey was no longer needed. The surveyor thought he had better mention this to the parents who were waiting to drop their children off.

It turned out later that the insurer had made a mistake. It was actually a completely different company - with a similar name to Mr B's nursery and covered by the same insurer - that had gone into receivership.

When Mr B found out what had happened, he complained to the insurer. He said the surveyor's actions had cost his company money. The insurer accepted Mr B's argument, and offered to pay £100 compensation. But Mr B rejected this offer. He explained to the insurer that the company had been forced to pay for advertising to let people know it was still in business. When the insurer refused to increase its offer, Mr B referred the matter to us.

complaint upheld
The fact that the insurer's surveyor had passed on information that was wrong - and potentially damaging to the nursery's reputation - was not in dispute. So we were satisfied that the insurer ought to compensate the business. But we needed to decide whether the insurer's offer was fair compensation for the damage done to the business's reputation.

In cases that involve a damaged reputation, we usually take into account what sort of information was involved, and how widely it was circulated. We also consider the business's reputation before the information was disclosed, and the impact of the disclosure of the information.

In this case, we noted that the surveyor had only spoken to a handful of people. We thought this was very different from, say, maliciously publishing a defamatory comment. In the circumstances of this case, it seemed unlikely to us that the rumour had spread widely within the local community. We also took into account the fact that the nursery had not been trading for long, and had not yet had the opportunity to build and develop its reputation.

Mr B told us that the nursery had incurred substantial advertising costs to put things right. We asked him to show us evidence that these costs had been incurred because of the surveyor's actions - and would not have been incurred in the ordinary course of launching and running the business. Mr B could not show us any evidence to show this had been the case.

We also asked Mr B to show us evidence that he had lost any custom as a result of the surveyor's actions. But he did not have any evidence to show this either. However, we did accept that the information might have been passed on both to potential and existing customers by word of mouth.

This could have led potential customers to check whether the company was still trading before they enquired about a nursery place for their child. And it could have led existing customers to panic and start to think about alternative childcare arrangements - especially considering Mr B's nursery was the only one in the village.

Taking everything into account, we concluded that the insurer's offer had not been fair compensation for the damage done to the nursery's reputation. We told the insurer to increase its offer to £300.

108/13
small business complains that insurer rejected claim wrongly

Mr D owned a small recycling business. After one of his vehicles was stolen, he made a claim under his motor insurance policy. His insurer rejected the claim. It pointed out that the vehicle in question was equipped with a "tipping" mechanism - and that if it had known about that when Mr D had taken the policy out, it would not have insured the vehicle.

However, the insurer did refund the premiums that Mr D had paid towards the insurance policy. But Mr D was unhappy with this, and he complained to the insurer. He said that it should have known the vehicle had a tipper because he had mentioned the business he ran - and that he did not remember being asked any questions about whether it had a tipper when he took the policy out.

When the insurer rejected the complaint, Mr D decided to bring his case to us.

complaint not upheld
Mr D had originally gone to the insurer's website to get a quote for his insurance. We looked at the website and found that he would have been asked to confirm that the vehicle "is not refrigerated, does not have a tipping unit and does not exceed 3.5 tonnes."

We also listened to a recording of the phone call during which Mr D had taken out the policy. During the conversation, the adviser had said "so it's a standard pick-up, then? It's not a tipper, it has six seats and it's a standard right-hand drive". Mr D had replied "yes".

Although we were satisfied that Mr D had not set out to mislead the insurer, we concluded that the insurer had accepted his answers in good faith. We explained to Mr D that when mistakes like this happen, we usually expect the insurer to do what it would have done if it had been given the right information.

In this case, having looked at the underwriting evidence, we were satisfied that the insurer would not have insured Mr D's vehicle if it had known it had a tipper. So we thought the insurer had acted fairly in turning down Mr D's claim. The insurer had accepted that he had not set out to defraud them, and had refunded the policy premiums he had paid.

In these circumstances, we did not uphold the case.

108/14
business owner complains that bank did not do enough to help when he made a mistake transferring money to his business account

Mr G owned a small IT business. The business needed to pay a supplier £5,000 for some equipment. Mr G's business had two accounts, and he needed to move money from one account to the other to pay the supplier. He logged into his online banking account to transfer the money. But when he went into the account he needed to use to pay the supplier, the money he thought he had just transferred wasn't there. He realised that he must have entered the wrong sort code. Mr G had no idea where the money had gone, and his company was left out of pocket.

As soon as he realised what had happened, Mr G phoned his bank to report his mistake. He spoke to several different people at the bank. Eventually he spoke to someone who said they would try and track down the money. But because his business needed the money immediately to pay the supplier, Mr G had to make a transfer from his savings account to cover the money that had gone missing. This time, the payment went through without any problems.

Mr G kept phoning his bank to find out whether it had found the missing money. Three months later, the bank got in touch to say that it had found the money in a "suspense account", and it returned to money to Mr G's business account a few days later.

Mr G complained to the bank about how long it had taken to get the money back. But the bank said that Mr G should have been more careful when he had entered the sort code in the first place - and that it hadn't done anything wrong.

Unhappy with this response, Mr G referred the complaint to us.

complaint upheld
When we spoke to Mr G, he accepted that he had entered the wrong sort code when he had tried to transfer the money between his accounts. But he also explained to us that because of his dyslexia, he often found it difficult to tell certain numbers apart - especially when he was in a hurry.

We explained this to the bank. We also asked the bank why it had taken over three months to find the money that had gone missing. But the bank couldn't explain why it had taken so long.

We concluded that the bank should have done more to help Mr G when he had first got in touch with them. We decided that the bank had, in effect, deprived Mr G's company of £5,000 for three months - and we thought it was likely that the money would have been part of the company's working capital. We told the bank to pay Mr G's company the interest that would have accrued on the £5,000 during the three-month period.

108/15
business owner complains that bank failed to acknowledge the distress it had caused

Mr and Mrs Y ran a property lettings business, Y Ltd. A new tenant had just taken one of their flats and given them a cheque for £2,500 as a deposit. Mrs Y paid the cheque into their business account.

Three weeks later, Mr Y noticed the money was not showing in their account. He phoned the bank to ask what had happened. The bank suggested that Mr Y contact the tenant to ask them to put a stop on the cheque - and to give Mr Y a new one.

Two days later, the bank found the original cheque and paid it in to Y Ltd's account. But because the cheque had been stopped, it bounced.

Mr and Mrs Y were unhappy that the bank had wasted their time. They decided to complain. They pointed out that the bank had suggested they get the cheque stopped, and had then gone on to try and credit it to their account. The bank accepted it had lost the cheque and paid Y Ltd £100 compensation for the inconvenience it had caused.

But Mr Y didn't think the bank had done enough to put things right. He wrote to them and explained that he suffered from high blood pressure - and that he had found the whole situation very stressful. He pointed out that he and his wife run their business on their own - that they "are the business". He said that the bank's mistake had made his condition worse. When the bank stuck to its original offer, Mr and Mrs Y brought their complaint to us.

complaint not upheld
We looked into all the circumstances of the case. We could understand that Mr Y had found the experience stressful. But we explained to Mr Y that although he thought of himself as the business, the bank's mistake had affected Y Ltd's account. And because Y Ltd was a limited company - a corporate body - it couldn't "suffer distress".

We concluded that the bank's offer to pay £100 to Y Ltd was appropriate compensation for the time that had been wasted sorting the problem out. In these circumstances, we did not uphold the complaint.

image: ombudsman news

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.