Financial Ombudsman Service branded ‘unfit for purpose’
The Financial Ombudsman Service (FOS) is “unfit for purpose” and needs “major reform”, according to a damning new report published by think tank the Institute of Economic Affairs (IEA).
The IEA said the FOS is “failing to delivery on its primary objectives of ‘providing fair and reasonable resolution of disputes at speed’”, the think tank said.
The FOS is a free to use service that settles complaints between consumers and businesses that provide financial services.
The IEA’s report added that payment protection insurance (PPI) cases had exacerbated its inability to delivery fair resolutions at speed, and that the FOS lacked transparency and accountability.
‘Playing into the hands of claims companies’
The FOS is not formally a regulator in the strict sense, but it exercises de facto regulatory powers in retail financial services by making determinations of complaints brought to it.
The FOS must consider what is ‘fair and reasonable’ in terms of law and regulations when deciding a case, but is not bound by such considerations.
According to the IEA, this disapplication of the rule of law afforded to the FOS has meant “many consumers consider that they have been treated unfairly”.
As a result, the think tank said, businesses make it very difficult to provide financial services at the lower end of the market to less well-off consumers. Bespoke services are costly, and when the risks associated with dealing with that section of the market are already inherently high, the viability of serving those consumers is threatened.
Victoria Hewson, head of regulatory affairs at the IEA and author of the report, said: “It is important that there is a forum for consumers to resolve disputes with financial services providers, because there is such an imbalance of power and asymmetry of information.
“But the FOS does not seem to be getting the balance right. It is in danger of infantilising consumers, who are not expected to take responsibility for their decisions, and playing into the hands of claims management companies.
“This acts against the interests of consumers as a whole, and favours larger firms, who can afford to provide for unpredictable awards, at the expense of smaller and more innovative providers.”
In response, a spokesperson from the FOS said: “Since the FOS was set up we have helped millions of consumers resolve their problems with financial businesses. In 2020/21, excluding PPI, we received around 50 per cent more cases than we expected to and are currently helping thousands of people with complaints, including many who have seen their lives or businesses impacted by Covid-19.
“We have recruited new staff to help us significantly reduce waiting times for customers and ensure we continue to provide an effective service. If anyone isn’t happy with how their complaint to a financial provider has been dealt with, they can come to our service with confidence that we will help put things right.”
The FOS faced criticism in 2018 when it was the subject of a Channel 4 Dispatches programme, which found that staff with inadequate training or understanding of financial products were judging cases, with some having reached decisions in favour of the banks, without properly reading case files.