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ombudsman news

issue 83

February/March 2010

complaints involving consumers who are in financial difficulties

Almost certainly as a result of the current financial climate, we have recently seen an increase in the number of cases where consumers cite financial difficulties as a factor in their complaint. Usually, in such cases, consumers say their lender failed to take proper account of their financial situation.

Our approach in dealing with such cases is to see whether we think the lender has made a proper assessment of the consumer's financial situation and whether - if there is financial difficulty - it has taken a sympathetic and positive approach.

When consumers are experiencing financial hardship, their situation can quickly deteriorate unless appropriate steps are taken - reasonably quickly - to address the problem. Speedy and efficient handing of matters by the lender is therefore particularly important, as is close cooperation between the consumer and the lender. The best results are likely to be gained through sensitive information-gathering by the lender, followed by agreement with the consumer on a clear, fair and workable plan for tackling the problem.

The cases we see suggest that arriving at such an outcome is difficult where the lender's policies and processes are overly prescriptive, or where staff have insufficient training and authority to be able to tailor a suitable solution for the individual customer.

Some consumers may wish to obtain advice and help from a debt-advice agency - and lenders should be prepared to communicate with their customer through such an agency if that is the customer's preference. But sometimes, as in case 83/02, the lender insists on involving a debt-advice agency even where this is not what the consumer wants or needs. That does not seem to us to be in anyone's interests, and it may even delay progress in obtaining a speedy resolution to the problem.

For most of the cases we see, the most appropriate way forward will be for the lender to tailor a 'package' of suitable measures (possibly reviewable at intervals) to meet the consumer's individual circumstances. The prompt, fair and practical proposals made by the credit card issuer in case 83/03 provide a good example of this.

In some cases, we find that the lender has failed to explain its proposals sufficiently clearly, or has come up with proposals that may seem reasonable on paper but that will not be workable in practice, given the individual customer's circumstances.

Consumers who are already in financial hardship are more than usually vulnerable to the knock-on effect to their finances of poor administration by the lender - as we illustrate in case 83/04. So it is important that, having agreed on a course of action with the consumer, lenders take particular care to record and administer the arrangements correctly.

83/01
consumer asks bank to treat her complaint about charges as a priority, because of her financial difficulties

Ms M complained to her bank about 'unpaid item' charges she had incurred on her current account over the previous six years. She asked the bank to give her case priority because she was experiencing financial hardship.

The bank did not agree with Ms M that she was experiencing any financial hardship, so she referred the case to us.

complaint not upheld
We asked Ms M for information about her financial difficulties. She was unwilling to disclose many personal details. However, she told us that her son, who was in his early 20s, had a number of debts. She planned to help him repay some of them with the money she was expecting from the refund of her bank charges.

The records of Ms M's current account showed that she had been through a period of financial difficulty several years earlier. At that time the bank had refunded some charges on her account, as well as helping her to re-schedule various direct debits so that it was easier for her to budget for them. We saw no evidence to suggest she had experienced any financial difficulties since then.

We said that, in the circumstances, the bank had no need to consider her case as a priority or to provide her with the type of additional assistance that might be appropriate in cases of financial hardship.

83/02
consumer in poor health seeks help from her bank because of financial difficulties

Miss K contacted her bank for advice, as she was finding it increasingly difficult to meet her financial commitments. She had a part-time job at her local supermarket and - largely on grounds of ill-health - she had recently cut back on the number of hours she worked. She had been suffering for some while from moderate clinical depression.

Miss K had a credit card and a current account with her bank. The current account was overdrawn, and her total borrowing was around £5,500.

A member of staff at the local branch of Miss K's bank gave her a list of several not-for-profit debt-advice agencies, together with a printed form headed 'Financial Statement'. He told her to fill in the statement with details of her income and outgoings and to then take it to one of the agencies on the list for 'verification'. He said that once she had done that, she should bring the form back to the bank. The bank would then consider how it might be able to help.

Some weeks later, Miss K returned to the bank. She said she had been to a debt-advice agency and had found it helpful to talk through her situation with an adviser. However, the adviser had said he was not in a position to verify her income and outgoings.

The member of staff she spoke to at her bank branch looked through her statement and questioned her about some of the items of expenditure she had listed. He noted the information she gave in reply and told her he would keep a photocopy of her statement, for the bank's records.

However, he stressed that the bank was unable to take matters further until the statement was 'properly verified'. It was therefore important that she found a debt-advice agency that would do this for her.

Two months passed, during which Miss K tried unsuccessfully to obtain 'verification' of her income and outgoings. Different members of staff from the bank rang her on several occasions during this period, with further queries about the information in her financial statement. She also received several standard letters from the bank requesting payments. Each time she received one of these letters she rang the contact number and explained that she was waiting for the bank's advice on how to manage her debt. She was told this would be noted on her records. However, the 'demand' letters continued to arrive.

Eventually she wrote to the bank. She said its poor handling of the situation had caused additional anxiety at a time when her state of health was already poor. And she complained that the bank had completely failed to provide the practical advice and assistance she had asked for.

The bank rejected the complaint, telling Miss K that her 'failure to cooperate fully' had 'limited' the extent to which it could help her. Miss K then came to us.

complaint upheld
We noted that Miss K had completed the details of her income and expenditure fully and accurately, without needing any assistance from a debt-advice agency. We could see no logical reason why the bank should have required 'verification' of her statement. The bank held her current account and was far better placed than any third party to assess the accuracy of the information she had provided.

There was no evidence to support the bank's assertion that Miss K had not been fully cooperative. She had taken the initiative in approaching the bank for guidance as soon as she realised her financial position was becoming difficult. And she had willingly answered all the bank's questions about the details in her statement.

We noted that these questions had been put to her in a piecemeal fashion over several weeks. And the bank did not appear to have kept any coherent record of its conversations with her. There was nothing to indicate it had dealt with her in a sympathetic or positive manner and it had made no real progress towards helping her manage her finances.

Following our involvement, the bank agreed to combine the credit card and overdraft debts, to be repaid in interest-free instalments, reviewable every six months. This meant that Miss K would be able to operate her current account without the complication of the overdrawn balance, and its potential to incur charges and interest.

We also said that the bank should pay Miss K £500 as compensation for the significant distress and inconvenience its handling of the matter had caused, at a time when it knew she was in poor health.

83/03
consumer complains that credit card issuer failed to provide sufficient help when he was experiencing financial difficulties

Mr B, who had a credit card debt of around £3,000, complained that his credit card issuer should have done more to help him when he was in financial difficulties.

For some months he had been struggling to manage even the minimum amount required as a monthly repayment. When he failed to pay anything at all for two consecutive months, his card issuer wrote to him. Mr B ignored this letter and several subsequent ones. It was only after he received a formal demand for payment, threatening legal proceedings, that he responded.

He told the card issuer that he was currently unemployed and experiencing considerable financial hardship. He was reasonably optimistic about finding another job quite quickly, as he was a skilled electrician. However, he had been out of work for several periods over the previous two years and this had put considerable pressure on his finances generally.

The card issuer offered some concessions to help ease the financial pressures on Mr B until he was back in employment. But he said that having the debt 'hanging over' him was 'hampering' his efforts to find a job. When the card issuer turned down his request for further concessions, Mr B brought his complaint to us.

complaint not upheld
We noted that the card issuer had acted promptly with an offer of help, once Mr B had responded to its letters and explained why he had fallen behind with his repayments. It had refunded the late payment charges made on his account and had offered him a 'payment freeze' for two months, to give him some 'breathing space'. It told him that after that two-month period it would accept reduced monthly repayments for a certain time, depending on how quickly he was able to get another job.

In our view, the card issuer had treated Mr B fairly. It had responded appropriately to his situation and had offered a practical and flexible solution. We did not uphold his complaint.

83/04
consumer suffering from ill-health and with financial difficulties complains about lender's poor administration

Mr J wrote to his lender to say he had 'got into difficulties' with his finances and would appreciate any advice and assistance the lender could give him.

He told the lender that his wife had died some six months earlier. He was finding it difficult to meet the repayments on the loan taken out jointly with his wife the previous year. His health had been so poor since his wife's death that he had given up his job as a warehouseman. He would soon be going into hospital for a major operation.

The lender's response was to send a letter, addressed to 'the late Mrs J', asking whether the loan would be repaid 'from Mr J's estate'. Mr J wrote again, largely repeating what he had said in his earlier letter. However, he also explained that he was entirely reliant on state benefits and he enclosed a copy of a statement showing his benefits income.

The lender wrote back promptly to Mr J. It apologised for its mistake in addressing its earlier letter to his late wife and it asked him to send details of his income. Mr J replied, enclosing a further copy of his benefits statement and pointing out that he had, in fact, already provided this information.

A week later, before he had heard any more from the lender, Mr J had a phone call from a debt-collecting business, chasing the missed payments for his loan. Alarmed by this turn of events, Mr J rang his lender to try and establish what had happened. His call was passed through to several different departments but no one appeared to have any record of his earlier correspondence.

Before he had time to work out what to do next, the planned date for his operation was brought forward and he went into hospital. On his return home several weeks later, Mr J found that the lender had sent him a formal demand for payment. He had also been sent a letter by the debt-collecting business, asking him to get in touch 'urgently'.

Mr J then sent a letter of complaint to his lender. Eight weeks later, he referred his complaint to us, as the lender had still not been able to resolve it.

complaint upheld
We thought Mr J had been badly let down by his lender. He was evidently in difficult personal circumstances and had taken the initiative in contacting the lender about his loan repayments.

Far from taking a sympathetic and positive approach, the lender had added to his distress by its inept handling of the situation. It also appeared to have completely ignored his request for help in dealing with the arrears in his loan repayments.

We pointed out to the lender that Mr J was now in a very difficult financial position, with limited options. The lender accepted that it had handled matters badly. It offered to write-off the remaining debt of £700 and to pay Mr J £250, in acknowledgment of the distress and inconvenience it had caused. Mr J was happy to settle the complaint on that basis.

83/05
consumer experiencing financial hardship complains that his bank failed to provide sufficient help

Mr V complained to his bank about the unauthorised overdraft charges levied on his current account. He reminded the bank that he had lost his job some months earlier, and he asked it to look into his complaint as quickly as possible because of his difficult financial situation.

The bank refused Mr V's request that it should refund all the charges on his account. However, it did offer to refund the charges levied in the previous three months. Mr V insisted that was not enough and he said the bank was acting unfairly. In response, the bank pointed out that it had refunded some similar charges on his account on a previous occasion, even though it had not been obliged to do so. Mr V then referred his complaint to us.

complaint upheld in part
It soon became clear that Mr V thought his financial difficulties automatically entitled him to a full refund of all the charges on his account. We explained that this was not the case. However, we told him he was entitled to expect his bank to make a reasonable assessment of his financial position - using the information he had provided - and to make fair proposals to help him.

It did not appear to us that the bank had given any thought to how it might help Mr V relieve the pressure on his current account. Its offer to refund the previous three months' charges appeared simply to reflect a standard approach - rather than any consideration of his individual circumstances.

We told the bank we thought there was more it could do to help Mr V. Its offer to refund three months' worth of overdraft charges might ease his situation temporarily. But as we pointed out, without a more thorough approach to the underlying problem, he would soon be back in a position where he was incurring charges again.

The bank agreed that, in addition to the refund it had already offered, it would reschedule Mr V's overdraft debt of £600 at a lower rate of interest, with affordable repayments.

We told Mr V that we thought this revised offer was a fair one. It took proper account of his circumstances and would enable him to break the cycle of charges. Mr V admitted that he had hoped to get a full refund of all his charges. However, he agreed to accept the bank's revised offer.

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ombudsman news issue 83 [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.