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Can the EU really deliver power to the people?

Neasa MacErlean asks whether the new consumer directive has a sting in its tail

One of the best-guarded secrets in the consumer world is the existence of the Ombudsman Service which can resolve disputes relating to mobile phones, energy and a range of other areas. And it is ordering companies to take remedial action – whether financial, non-financial or both – in 88 per cent of cases.

More than this, a new system of alternative dispute resolution (ADR) is coming into place by July 2015 to cover all consumer disputes. This is the result of an EU Consumer Directive on ADR, which will "allow consumers and traders to solve disputes without going to court, in a quick, low-cost and simple way". So new schemes will have to be set up to cover, for instance, all of the retail sector, the whole of the home maintenance area (including plumbers and electricians), transport and water.

But there could well be a sting in the tail. In many of these areas, it may turn out that the suppliers can pick and choose the ombudsman or other ADR scheme that they want.

Adam Samuel was an ombudsman at the Personal Investment Authority and at the Insurance Ombudsman Bureau (IOB) in the 1990s. He says: "It is better to have something than nothing and an ADR scheme with zero credibility among consumers would be flushed out fairly quickly. However, the reality is that these schemes need customers, by which I mean businesses. This has always led to a risk of the firms leaning on the scheme. We had it all the time at the IOB. That organisation was in competition for members with the Chartered Institute of Arbitrators' Personal Insurance Arbitration Scheme. So, in the early days, the IOB was probably far too firm-friendly, a necessary pre-condition to the growth of private-sector Ombudsman schemes."

But consumers seem to be well served at the moment by the two main ombudsman schemes – confusingly known as the Financial Ombudsman Service and the Ombudsman Service. Companies have no choice about whether to join the Financial Ombudsman scheme, and they have to abide by its formal decisions. This is the "only effective form of dispute resolution for consumers", according to Mr Samuel, as the companies involved have no power over the scheme. At the moment it is deciding about half the complaints it rules on in favour of consumers.

The Ombudsman Service deals with a range of areas – surveyors, estate agents, copyright licences as well as the two main ones it handles, energy and communications. Audrey Gallacher, the director of energy at the consumer body Consumer Futures, said: "It provides valuable help to consumers."

Citizens Advice – which deals with 90,000 energy problems a year and 55,000 on communications – recommends the Ombudsman in some cases.

Energy complaints to the Ombudsman were up 33 per cent in 2012-13 to 8,800. Just over 80 per cent of these related to billing. The Ombudsman is currently ordering remedial action – financial, non-financial or both – from energy companies in 93 per cent of cases.

The Ombudsman Service gives various case studies in its annual report. but most are rather technical. It does include a testimonial from one consumer who says: "Had it not been for the Ombudsman, I would never have got the money that was owed to me."

On communications, it ordered remedial action in 85 per cent of the 10,000 disputes it resolved. One case study in the annual report shows a company that increased monthly charges for a consumer from £48 to £203 in the second year of a two-year deal. But because there was no mention of such an increase in the contract the complainant had signed – the "key piece of evidence", in the Ombudsman's words – the company was ordered to maintain the charge at £48.

On communications, however, the Ombudsman Service is not the only ADR-provider. While BT, Vodafone and Tesco, for example, opted to go with the Ombudsman, Virgin and Orange preferred to join the Communications and Internet Services Adjudication Scheme (Cisas) scheme run by the Centre for Effective Dispute Resolution (CEDR). There are clear differences between the Ombudsman and Cisas schemes in the way they present themselves to consumers. The Ombudsman scheme is more consumer-friendly with up-to-date annual reports. Cisas appears far more tuned-in to the companies whose complaints it decides rather than consumers. The latest annual report published on its site was for 2010 – although after it was contacted by The Independent, Cisas put up on the site an explanation for the delay – "operational reasons" – and said a report would be available "shortly".

Lewis Shand Smith, the chief ombudsman at the Ombudsman Service, thinks it would be better to have just one scheme in a sector. He says organisations such as his have to be "absolutely rigid" to ensure that they do not let themselves be influenced by the companies whose ADR business they are trying to win. The communications regulator Ofcom has appointed both the Ombudsman and Cisas as approved schemes – and companies can choose between them. "There is always the risk that companies will play one of us off against the other," Mr Shand Smith says. "This is a case in which competition, instead of driving up quality, could drive it down and drive down the independence of schemes."

You only have to look to the audit sector to see that organisations find it difficult to stay independent from a company that they are trying to win business from. With more than a century of experience behind it, the auditing profession has never managed to quell suspicions that many of its members are too soft on companies they audit, because they are appointed by them.

Meanwhile, decisions will need to be made soon if the UK is ready to extend ADR services across the whole of the consumer sector within the next two years. One decision will need to be taken at the highest level: whether to encourage a number of schemes or to consolidate. A campaign has already begun, mainly behind the scenes, to concentrate all ombudsman services into three organisations – the Financial Ombudsman, the Legal Ombudsman and a Consumer Ombudsman.

CEDR offers adjudication schemes – ranging from funeral services to travel redress, the postal system and renewable energy – which operate quite differently to the ombudsman approach. The two sides present their cases and an independent adjudicator gives a ruling at the end. In the Ombudsman schemes, the two sides tell their tales to the Ombudsman, who then marshals the information.

Other issues need to be decided. Should consumers pay for these services? At the moment, the big ones – the Financial Ombudsman, Ombudsman, Postal Redress and Cisas schemes – are all free. And should all companies dealing with the public be forced to sign up? The EU directive envisages that schemes will be available but that, in some areas, companies could decide not to participate. This might be understandable for a plumber with five trusted clients, but it could be exploited by larger businesses.

Whatever approach is adopted, we are all going to hear a lot more about ADR. "It's going to be the future," says Andy Rogers of CEDR.

Case study: all hopes rest on the ‘last resort’

Sam (not his real name) got a bill for over £1,200 from Vodafone when he was expecting no bill at all.

He had signed up for a deal that included free internet use. But his work takes him abroad a lot and he was using his mobile in Europe and Bangladesh.

After he made a partial payment and complained about the bill, he found that his phone was cut off within 24 hours. Vodafone told him that the free part of the deal related only to the UK.

Sam was told that he should have been aware of a condition that was explained on the Vodafone site: "As we've mentioned this on our website, we will not be able to waive any charges for you."

Sam found the company's approach "very harsh" and "arrogant". Starting off a complaint at the Ombudsman Service has been "easy" and has given him some hope, although it does not look as if there will be much news on his case for at least three months.

He is keeping his fingers crossed. Although he says "I feel I have a very strong case", he knows that it would be impractical to pursue his complaint in court.

He explains: "The ombudsman is the last resort as far as a formal recourse is concerned."

On paper, he seems to have a good chance. In six out of seven cases on communications issues, the ombudsman orders the telecom firms to take some remedial action.