December 2009/January 2010
In this ombudsman focus, Jane Hingston - our lead ombudsman for banking and credit - talks to ombudsman news about her work on complaints involving consumer-credit businesses
As part of our plans for the extension of our remit to cover consumer-credit complaints (under the new Consumer Credit Act that came into force in April 2007) we consulted widely on the number of consumer-credit cases we could expect to handle.
It was agreed that initially the number would be low - but that it would increase within the first few years, as businesses got used to having formal complaints-handling arrangements for the first time - and as a much wider range of consumers started to hear about their new right to bring complaints to the ombudsman.
The number of consumer-credit complaints referred to the ombudsman service has increased in line with those forecasts.
The 849 cases we received in the first year (2007/08) rose to 3,014 the following year (2008/09). And we received over 3,000 consumer-credit complaints in the first six months alone of the current financial year (2009/10).
|complaint type||financial year
(first 6 mths only)
|hiring/ leasing/ renting||26||92||175|
*These complaints specifically involve products and services covered since April 2007 by our consumer-credit jurisdiction. They do not include complaints about credit cards (18,590 cases in 2008/09) or unsecured loans (4,242 cases in 2008/09) relating to businesses that were already covered by the ombudsman before April 2007.
Back in early 2007 no one foresaw the economic crisis that was to break later the following year - with the subsequent impact of the UK recession on financial complaints. In our experience, recession and market downturns can cast a long shadow on complaints workloads, with issues such as arrears, repossessions and the affordability of loans. This is why we are suggesting that the number of consumer-credit complaints referred to us could rise to 10,000 next year (2010/11).
This is a figure we will be consulting on formally as part of our corporate plan and budget, to be published in January 2010.
Last year (2008/09) we upheld 44% of consumer-credit complaints in favour of the consumer - compared with an overall average of 57% across all complaints we resolved. So far this current year, we have upheld 59% of consumer-credit complaints.
You're right that we don't have direct individual contact with many smaller businesses - unless their customers actually refer complaints to us.
When we took on responsibility for handling consumer-credit complaints, we held roadshows nationwide, and we wrote to every business with a consumer-credit licence to tell them about the new complaints-handling arrangements and the role of the ombudsman.
What we do now is to focus on our relationship with a wide range of trade bodies and smaller-business networks. These organisations work hard to make sure that those of their members who carry out consumer-credit activities know what is required in the event of a customer complaint - including escalation to the ombudsman where appropriate.
This work includes our taking part in conferences, exhibitions and seminars that are attended by people working in consumer credit - both at businesses and across the free money-advice sector. I like to speak at events like these wherever I can. I find it very helpful to get feedback on the real issues at grass roots. And much of the feedback I hear is that even those who haven't had direct experience of our service are interested in what we do - and understand the importance of having an impartial, knowledgeable decision-maker for those times when disputes can't be resolved in-house by the business itself.
A recurring question is how businesses can avoid having any dealings with me - though I try not to take this personally! Actually this is a question I welcome, because encouraging businesses to improve their complaints handling - and to sort out customers' problems more effectively themselves - is a key part of the complaints-prevention work we take very seriously at the ombudsman service.
From the wide field of complaints I see, one of the most effective ways to prevent disputes is to ensure clear and constructive communication with the customer from the moment there are the first signs of a problem. This becomes crucial where - as is so often the case these days - the consumer is facing some kind of financial difficulty. Failing to respond promptly to an approach from a customer - or responding unsympathetically or unconstructively (for example, by ignoring what the consumer is saying and simply pressing on with debt-repayment proposals) - usually guarantees that the problem will escalate into a protracted and entrenched dispute.
It's not in anyone's interests for a straightforward matter to be allowed to deteriorate to the point where the customer relationship breaks down - simply because the business has failed to get to grips properly with a complaint. But all too often, in some of the cases that end up on my desk for a decision, that is exactly what has happened.
As soon as a business knows it has an unhappy customer, it should make sure it understands what exactly they are complaining about and why. If there's a chance the business may have done something wrong, it shouldn't be afraid to say so - and to offer to put things right. A genuine apology, together with an explanation of what can be done to correct the situation, can often be all it takes to settle matters amicably - and to secure a positive customer relationship going forward.
Clearly not every complaint is easy to resolve - particularly if the business and the customer are unable to agree on what happened or on whether matters should have been handled differently. If, after listening carefully to the customer and investigating their concerns, a business still genuinely believes it did nothing wrong, then it should tell the customer this, setting out its side of the story in a final response letter.
This letter should set out the facts and circumstances clearly and objectively, reminding the customer about their right to refer the matter to the ombudsman if they so choose. And businesses should bear in mind that setting out their position clearly and objectively doesn't mean they can't take a sympathetic and sensitive tone.
Getting into lengthy, point-scoring arguments at this stage - or worse, just trading personal recriminations with the customer - simply makes a difficult situation even worse. The requirement for businesses to send a final response letter within eight weeks of receiving a complaint provides them with a practical customer-relations tool - and the opportunity to formally record their version of events, clearly and constructively.
Together with the complaint form completed by the consumer - giving their side of the story - the business's final response letter is usually the first thing we look at when we receive a new complaint.
It is particularly important for businesses to provide a positive and sympathetic response, if they are made aware that a customer is experiencing financial difficulties. The best outcome will be achieved by first gathering all the necessary information and then coming up with proposals that are clear, fair and workable.
Processes or policies that are too rigid, or that apply arbitrary limits or deadlines, are unlikely to result in a fair approach.
Where staff are given appropriate training - and have sufficient authority to be able to tailor a fair solution for an individual customer in financial difficulties - there is a far better chance of preventing matters from escalating into full-blown disputes.
Often all that is needed to help the customer through lean times is a simple measure, such as requiring only part repayments for an agreed period, re-scheduling a repayment date to fit in with benefits payments, or suspending interest for a time.
Of course, if a business has spent time and effort agreeing tailored arrangements with a customer, it's crucial that poor administration doesn't then spoil things. A disappointing number of the complaints we see involve businesses that have failed to keep to the agreed arrangements, or that have made errors in setting them up. Consumers in financial difficulty are likely to be more than usually vulnerable to the knock-on effect to their finances of this type of service failure.
Some businesses misunderstand the ombudsman's remit - or their own responsibilities in law - in connection with complaints about the quality of goods acquired by the consumer using some form of credit. "Point-of-sale" loans - as well as credit-card purchases - will normally carry with them liability for the provider of credit under section 75 of the Consumer Credit Act 1974. Hire-purchase contracts, which are also consumer-credit agreements, include certain terms about the quality of the goods supplied under the contract - whether or not these are set out explicitly in the wording.
Our consumer-credit jurisdiction enables us to deal with these sorts of complaints because of the statutory or contractual rights that the consumer has against the provider of the credit. So it is disappointing when a business wrongly argues about our remit to deal with a case like this - causing unnecessary extra work for everyone.
Providers of credit are sometimes reluctant to look into a customer's complaint about the quality of goods - instead encouraging them to go back to the outlet that provided the goods (for example, the store or car dealer).
In some cases, we have found credit providers wrongly quoting the law - such as telling the customer that they have to sue the retailer or supplier first, before they can make any claim under section 75. Where this results in the consumer incurring extra costs, or being put to unnecessary inconvenience, we are likely to take that into account in any settlement we decide.
I sometimes hear it claimed that our jurisdiction "doesn't cover" the commercial judgement of a business - for example, on whether to lend and on what terms, or on adjustments to interest rates. But the idea that the ombudsman "can't deal with complaints about commercial judgement" is entirely wrong.
In fact, we can, and do, look at complaints about all sorts of issues around commercial judgement. For example - where the complaint is about an interest-rate change (or the lack of one), we take into account factors such as the account terms and conditions and any relevant law (often the Unfair Terms in Consumer Contracts Regulations 1999) when assessing whether we consider the business has done something wrong.
We all know that things don't always go to plan. Disputes can arise in the best of businesses. But taking the trouble to deal well with complaints, right from the start, can yield real results in terms of retaining customers and building a business's good reputation - more important than ever in today's climate.
For printed copies of this or any of our publications, phone 020 7964 0092 or email publications.
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.