YOUR INDUSTRY
Top 10 Hot Topics
- Consumer Credit Act
- Advertising
- European Credit Directive
- OFT
- Principles-based regulation
- Treating Customers Fairly (TCF)
- Payment protection insurance (PPI)
- FSA
- FOS/FSCS
- FAQs
Your Industry
Current Issues
Financial Ombudsman Service
From 6th April 2007, consumer credit business, including secured loans, comes under the remit of Financial Ombudsman Service (FOS). AFB members will need to put in place complaints handling procedures that meet the rules outlined in the FSA handbook.
The key elements of the ombudsman service are:
- Consumers must complain to the firm first, but have access to FOS if the complaint is not resolved to their satisfaction.
- Disputes are resolved by an independent person, on the basis of what is 'fair and reasonable' in all the circumstances of the case.
- FOS has the powers to require both firms and customers to provide information or documents necessary to resolve the dispute.
- FOS's decision is binding on both the firm and the customer if the customer chooses to accept FOS's decision. It is binding on neither party if the customer does not accept the decision.
- FOS can require the firm to pay an award of up to £100,000, or take other steps the ombudsman considers just and appropriate.
'Fair and reasonable'
FOS is required to decide cases based on what is fair and reasonable. This can include reference not just to legislation (e.g. CCA provisions), but also to codes of practice (such as the OFT's non-status guidelines), and good industry practice in general.
Information from FOS for consumer credit firms
FOS have produced some information specially for consumer credit licence holders, which can be downloaded from its website, using the following links.
A brief guide to how consumer credit firms are affected by FOS:
An introduction to FOS for consumer credit businesses:
FOS frequently asked questions for consumer credit business:
Funding issues for consumer credit business
Firms who are already subject to the compulsory jurisdiction of FOS (because they are FSA authorised for first charge mortgages and/or general insurance) will have their consumer credit complaints handled under the existing compulsory jurisdiction (cj) rather than the new consumer credit jurisdiction (ccj). This means that these firms will only fall into one funding block and will therefore only pay one set of fees for FOS. Firms who are not already in the compulsory jurisdiction will fall into the ccj and will pay fees to FOS through the OFT licence renewal system.
FOS funding review for the compulsory jurisdiction
At present 70% of FOS' funding comes through the case fee system, with the balance through the annual levy. Each firm has access to two cases free. The standard case fee has remained at £360 since 2002 with the special case fee being £475. AFB's sister trade body AMI has long campaigned for a review of the Ombudsman's funding strategy and its lobbying on this front was successful. In May 2006 FSA and FOS published a joint discussion paper on the future of the FOS funding.
Having secured the review the next task was to ensure the options to emerge favoured intermediaries. The discussion paper set out a variety of options, from A to K. AMI supported Option H as the fairest deal for its members and the one that would remove the worry of paying case fees for the vast majority of members.
AMI's preferred option - Option F - comes with a levy of £175 and five cases free. Case fees of around £480 would be payable for the 6th and every subsequent case each year. It is expected that this would also apply at appointed representative (AR) level, so each AR firm would also have five free cases. It meets AMI's objective of removing the worry of case fees from the majority of member firms and is also based on a firm fee, rather than a permission basis.
Complaints against mortgage intermediary firms have been relatively low since 'Mortgage Day' but they are on the increase and could rise rapidly in a short space of time. Option F will mean a higher levy for most members but AMI's view is that this equates to an 'insurance policy' which (with a case fee of £480) would require only one complaint to prove its worth.
Click here to see a copy of AMI's response to the FOS funding review discussion paper.
AFB View
Click here to read AFB's response to the CCJ proposals.
Financial Services Compensation Scheme (FSCS)
The Financial Services Compensation Scheme (FSCS) is the UK's statutory fund of last resort for customers of authorised financial services firms. This means that FSCS can pay compensation if a firm is unable, or likely to be unable, to pay claims against it. FSCS is an independent body, set up under the Financial Services and Markets Act 2000 (FSMA). Like FOS its service is free to consumers.
View more information on the FSCS.
This covers latest news and publications. FSCS also publish a regular Industry Newsletter.
FSCS funding
AFB members may not currently experience the same financial pressure as IFAs in respect of contributions to the FSCS but AFB believes the funding regime requires urgent reform to ensure it is fair, affordable and sustainable for the future. AFB and our sister trade bodies AIFA and AMI, lobbied hard for a review of how the FSCS is funded. A Discussion Paper (DP 06/1) was published in 2006. AFB has submitted a response to the FSA's Discussion Paper 06/1 on the Financial Services Compensation Scheme (FSCS) Funding Review.
To see a copy of AFB's response to the FSCS funding review discussion paper visit: [It's in the P drive/AFB responses/FSCS funding - can we put a link on website please]
The current system of funding creates a disproportionate burden on certain sectors of the industry while allowing others, who have pecuniary or mutual financial interest in the area of business affected, to avoid their fair share of the costs. AFB believes that if a firm profits from the manufacture or distribution of a financial product, they must also carry some of the potential liability.
AFB's preferred funding option as outlined in the discussion paper is Option B. This option moves away from the current funding system (broadly based on the regulator's contribution groups: A.18 -mortgage lenders, advisers and managers, A.19 - insurance intermediaries) to one based around five broad classes of business: life and pensions; securities, mutual funds and derivatives; deposits; general insurance; and mortgages.
Option B addresses the issues created by major market failures in a way which is sustainable and recognises that all participants have a financial interest. It recognises that all participants in the UK financial market benefit from the scheme, and therefore should, albeit to a limited extent, contribute to funding for other classes of business.
A consultation paper on the funding of the FSCS is expected early next year. We will keep members informed on further developments with the funding review.