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ombudsman news

issue 8

August 2001

about this issue of ombudsman news

Much of this edition is devoted to mortgage endowment complaints, which continue to account for around 60% of all new complaints received by the investment division. At the end of May, the Personal Investment Authority (PIA) issued its guidance on the calculation of compensation for mis-sold mortgage endowment policies. Since then, firms have been reviewing their internal procedures and setting up systems to enable them to compare individual mortgage endowment policies with equivalent repayment mortgages. Many of the cases settled since 29 May have been in accordance with offers that firms made before this guidance, but increasingly we are seeing offers being made in accordance with the guidance. This edition includes a number of mortgage endowment cases studies, illustrating both the determination of liability and the calculation of compensation.

PIA's Regulatory Update 89 permits firms to delay calculating any compensation due, pending the outcome of a test case concerning demutualisation windfalls, (Needler Financial Services v Taber). The outcome of the test case was that the High Court has decided windfall payments should not be deducted from the total compensation payable. However, the firm can still seek leave to appeal and has until 17 September this year to do so.

Notwithstanding the PIA guidance, not all firms wished to delay making final offers. Some are reconsidering their position in the light of the decision, but others are continuing to make final offers without any deduction for windfall payments. The Financial Services Authority (FSA) is considering the question of windfalls in relation to the calculation of compensation for mis-sold mortgage endowment policies and we are discussing the position with them. Until we have reviewed the situation after 17 September, we will not issue any ombudsman's decisions in these cases, other than to endorse offers firms have made which exclude windfalls. (We discuss the test case in more details here.)

Many of you find our case studies particularly helpful and, in addition to the mortgage endowment cases, we feature a broad selection of case studies on other topics, including personal equity plans. We also provide an update for firms regulated by IMRO and by the SFA on some of the changes they may notice in our case-handling process, as we prepare for when we receive our full powers on 1 December this year.

Walter Merricks, chief ombudsman

ombudsman news issue 8 [PDF format]

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.