Your Money: The cut-price Ombudsman

Government proposals for the financial services watchdog are causing alarm

CONSUMERS WHOSE complaints to a new financial services watchdog are judged to be "unreasonable" may be forced to pay a hefty bill, under recently published Government proposals.

The draft Financial Services and Markets Bill says the new Financial Services Ombudsman scheme could order complainants to pay for "improper or unreasonable conduct". Payments would be made both to the scheme and companies themselves.

The proposals would also allow costs to be charged for "delay which the complainant could have avoided had he acted reasonably". Financial advisers whose clients complain to the existing financial services watchdog, the PIA Ombudsman, are required to pay pounds 500 towards the administrative work involved in dealing with the claim.

The Ombudsman will be created from eight existing schemes, including the Personal Investment Authority, Banking, Insurance and Investment Ombudsmen.

But consumer groups, and the Ombudsmen themselves, want the proposals dropped. Under the current system, complaining to an Ombudsman costs nothing. The PIA Ombudsman rules in favour of only around half of the complaints to it, the Insurance Ombudsman about a third.

Michael Lovegrove, press officer for the Insurance Ombudsman, says: "We had a case where a man complained because his insurance company sent him a cheque for pounds 50. He claimed for pounds 55 so they sent him another cheque for pounds 5 but he demanded an actual cheque for pounds 55 and brought it to us. The complaint was clearly unreasonable, but I do not believe in awarding costs. The scheme provides an informal means for resolving complaints. Costs could put people off."

The Consumers' Association (CA) is lobbying the Government to drop the proposals. Philip Telford, the CA's senior money researcher, says: "It is a ridiculous departure from the current system, and... could stop a lot of people using the Ombudsman."

Complaints must first be made to the company concerned. If the complainant remains unhappy, the case can be taken to the Ombudsman who can award compensation if the complaint is valid.

Rulings are usually binding on companies, but if the Ombudsman rules against the complainant, they pay nothing. Financial services companies argue this is unfair and consumers ought to pay something towards costs if their complaints are deemed frivolous.

But Tony Holland, Ombudsman for the Personal Investment Authority, warns the proposals could turn the Ombudsman into a new court when it is supposed to prevent people having to take legal action: "This could create uncertainty in people's minds, and may put them off bringing a complaint. This would make it more like a court."

Mr Holland fears for people who cannot afford to pay being ordered to stump up costs under the proposals.

The new Ombudsman scheme, while operating at arm's length from the Financial Services Authority, will still be seen by many people as its consumer redress system.

A Financial Services Authority spokeswoman says: "We are working closely with the Treasury on the development of the Bill, and this is one of the issues we will be discussing with them."