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annual review 1 April 2005 to 31 March 2006 - how we dealt with the complaints

We resolved a total of 119,432 cases in the financial year 2005/06 - a 31% increase on the previous year (following an 18% annual increase in the number of cases we resolved in the year before that).

This is the highest number of cases we have resolved in any year - and a four-fold annual increase on the number of cases we settled in the financial year 2000/01, when our predecessor ombudsman schemes merged to form the Financial Ombudsman Service.

The 119,432 complaints we resolved during the year included 70,757 mortgage endowment complaints - a 45% increase on the 48,869 mortgage endowment complaints resolved in the previous year.

number of cases resolved

2006 - 119,432 cases resolved

2005 - 90,908 cases resolved

2004 - 76,704 cases resolved

2003 - 56,459 cases resolved

2002 - 39,194 cases resolved

2001 - 28,400 cases resolved

year ended 31 March

110,229 cases - 92% of the total number of cases settled - were resolved by adjudicators, using a range of dispute-resolution tools and techniques, including guided mediation and informal recommended settlements. In each case we take the approach we believe will be the most appropriate in the individual circumstances - and the most likely to settle the complaint quickly and fairly.

More formally, adjudicators can issue an "adjudication" on a case - a document setting out our recommendations about whether the complaint should be upheld. In most cases, both sides accept the recommendations. But either side can ask instead for a review and final decision by an ombudsman. This happened in 8% of cases during the year. A decision by the ombudsman is final - it is the last stage of our dispute-resolution process.

During the year around 15% of the mortgage endowment disputes we handled turned on whether the firm had correctly applied a “time bar” - compared with 12% in the previous year. We cannot consider the merits of complaints where firms have properly applied the “time bar” rules (as set out in the FSA’s complaints-handling rules - the “DISP” section of the FSA’s Handbook).

As we commented in last year’s annual review, the number of mortgage endowment cases that are out of time is expected to continue to rise substantially, where consumers leave it too late to complain. We expect that even more of our work in future will be spent dealing with complaints from people unhappy that they have been told their right to complain has expired.

outcome of cases resolved by adjudicators (resolved by mediation, recommended settlements and adjudications)

mortgage endowment cases (67,774 cases resolved)

  • In 46% of cases, the adjudicator found that the firm had treated the customer’s complaint fairly.
  • In 1% of cases, the firm had made an offer to the customer but the adjudicator negotiated an improved settlement.
  • In 31% of cases, the adjudicator found that the firm had not treated the customer’s complaint fairly.
  • In 2.5% of cases, the customer withdrew their complaint.
  • In 19.5% of cases, the complaint was found to be outside our jurisdiction (for example, because it was made out of time).

cases other than mortgage endowments (42,455 cases resolved)

  • In 59% of cases, the adjudicator found that the firm had treated the customer’s complaint fairly.
  • In 6% of cases, the adjudicator found that the firm had generally treated the customer’s complaint fairly - but the firm still agreed a goodwill payment.
  • In 10% of cases, the firm had made an offer to the customer but the adjudicator negotiated an improved settlement.
  • In 12.5% of cases, the adjudicator found that the firm had not treated the customer’s complaint fairly.
  • In 8% of cases, the customer withdrew their complaint.
  • In 4.5% of cases, the complaint was found to be outside our jurisdiction (for example, because it was made out of time).

outcome of cases resolved by ombudsmen (resolved by final decisions)

mortgage endowment cases (2,983 cases resolved)

  • In 28% of cases, the ombudsman found that the firm had treated the customer’s complaint fairly.
  • In 2% of cases, the firm had made an offer to the customer but the ombudsman negotiated an improved settlement.
  • In 33% of cases, the ombudsman found that the firm had not treated the customer’s complaint fairly.
  • In 1% of cases, the customer withdrew their complaint.
  • In 36% of cases, the complaint was found to be outside our jurisdiction (for example, because it was made out of time).

cases other than mortgage endowments (6,220 cases resolved)

  • In 51% of cases, the ombudsman found that the firm had treated the customer’s complaint fairly.
  • In 2% of cases, the ombudsman found that the firm had generally treated the customer’s complaint fairly - but the firm still agreed a goodwill payment.
  • In 5% of cases, the firm had made an offer to the customer, but the ombudsman negotiated an improved settlement.
  • In 36% of cases, the ombudsman found that the firm had not treated the customer’s complaint fairly.
  • In 1% of cases, the customer withdrew their complaint.
  • In 5% of cases, the complaint was found to be outside our jurisdiction (for example, because it was made out of time).

different outcomes in different cases

Where we uphold a complaint in favour of a consumer - either wholly or partly - there are a number of ways in which we can put matters right, depending on the individual circumstances of the case.

Where we do not uphold a complaint in favour of a consumer, we always aim to give a clear explanation of why we believe the firm has treated its customer fairly. In some cases, this is something the firm could have done initially, to have prevented the complaint arising in the first place. In other cases, our explanation simply reinforces - from an impartial standpoint - what the firm has already set out clearly for its customer.

We recognise that any decision of ours will be disappointing for the side that does not hear what they wanted to hear. But whatever the outcome, we hope we will have “added value” by giving our view on the case fairly, authoritatively and independently

different outcomes in different cases
awarding financial redress Telling the firm to pay redress - to put the consumer in the position they would now be in, if the firm hadn't got it wrong in the first place.
awarding compensation for distress and inconvenience Telling the firm to compensate the consumer for particular distress and inconvenience - generally a modest amount between £150 and £500, where we believe the individual circumstances justify it.
directing the firm to take action, to put right what's gone wrong This can range from correcting credit references to paying a previously rejected insurance claim.
asking the firm to apologise to the consumer
explaining to the consumer why we don't think the firm has treated them unfairly

timeliness

The chart below shows the time it takes to resolve disputes that are referred to the ombudsman service. The very large volumes of mortgage endowment complaints that we continued to receive during the year meant we were not able to deal with these cases as quickly as we would have liked. On average, a complaint now takes us between six and nine months to resolve. However, as part of the further expansion during the year of our endowment case-handling unit, we recruited around 120 more adjudicators and support staff. As these “new starters” have got up to speed and become fully productive, our particular focus has been on resolving the mortgage endowment complaints that have been with us longer.

time taken to resolve cases

2006
32% resolved within 3 months
59% resolved within 6 months
75% resolved within 9 months
85% resolved within 12 months
excluding mortgage endowment cases
2006
43% resolved within 3 months
74% resolved within 6 months
84% resolved within 9 months
89% resolved within 12 months

2005
32% resolved within 3 months
64% resolved within 6 months
80% resolved within 9 months
90% resolved within 12 months
excluding mortgage endowment cases
2005
42% resolved within 3 months
72% resolved within 6 months
82% resolved within 9 months
88% resolved within 12 months

 

2004
47% resolved within 3 months
79% resolved within 6 months
91% resolved within 9 months
96% resolved within 12 months

However, the real concern for consumers with mortgage endowment complaints is whether they will be able to pay off their mortgage when their endowment matures - usually at some future date. Generally, no loss has yet materialised in real terms. So a longer waiting period before deciding these cases, while regrettable, is not critical in terms of the loss the consumer currently faces. This is why our approach, in the short term, is to give priority to resolving disputes that involve products other than mortgage endowments, where any loss is likely to have materialised already. We also continue to give priority to cases where the consumer might clearly be disadvantaged by having to wait - for example, through financial hardship or for medical reasons.

The time taken to resolve a complaint is also affected by the complexity of the case - and by whether the firm and consumer are willing to accept any conciliated settlement at an early stage, or whether either side instead requests a more formal review, including an “appeal” to an ombudsman. Cases involving hard-fought arguments and entrenched attitudes are more common, as firms increasingly take a legalistic approach to dispute resolution and consumers become more demanding and less willing to concede. This has a direct impact both on the time it takes us to resolve disputes and on our unit cost and productivity.

our budget and productivity

The Financial Ombudsman Service is funded by an annual levy paid by firms we cover - and by case fees that we charge each firm for the third and subsequent disputes referred to us during the year.

In November 2005 we announced that we would be reviewing these funding arrangements. And in May 2006 we and the Financial Services Authority (FSA) published a discussion paper putting forward a range of possible alternative funding options for the future. The discussion paper - which is available on this website - considers the balance between annual fees and case fees, as well as other issues about the structure of our funding.

Our budget is calculated on the basis of workload forecasts which we consult on publicly each year in January and February - before the start of the new financial year.

When we consulted in January and February 2005 on the budget we proposed for the financial year 2005/06, we said we expected to resolve 116,000 cases during the year, at a total cost of £53.1m - the equivalent of £456 per case. We exceeded expectations and resolved over 119,000 cases.

Our income from case fees was marginally below budget, because more firms than expected had only one or two complaints during the year - for which we do not charge case fees. (As explained below, we charge firms only for the third and subsequent disputes referred to us each year.) Other income we received relates to interest income, the sale of publications, and fees we charge to cover the costs of our industry conferences.

our income and expenditure (summary)

actual year ended 31 March 2006

£ million

budget year ended 31 March 2006

£ million

actual year ended 31 March 2005

£ million

actual year ended 31 March 2004

£ million

income

annual levy

11.7

11.1

12.4

13.1

case fees

39.8

40.0

31.2

27.4

other income

0.5

0.0

0.4

0.5

total income

52

51.1

44.0

41.0

expenditure

staff-related costs

40.5

41.1

34.7

26.6

other costs

8.9

8.8

8.2

6.8

financing charges

0.3

0.3

0.2

0.2

depreciation

2.9

2.9

2.7

2.9

total expenditure
52.6
53.1
45.8
36.5
(deficit)/surplus
(0.6)
(2.0)
(1.8)
4.5
The management accounts - as summarised in this table - are shown before adjusting for the accounting standard FRS 17 on pension accounting. After adjusting for FRS 17, the statutory accounts show a reduction in pension costs and an overall deficit of £0.3m - but they also show, as a liability in the balance sheet, a deficit of £2.3m on our closed final salary pension scheme.

Our total expenditure for the year of £52.6m was £0.5m below budget - almost wholly due to lower than expected staff costs.

The amount of bad debts during the year increased to £0.6m as a result of firms going out of business, leaving case fees unpaid. Two-thirds of these unpaid case fees related to ten firms.

average number of cases resolved weekly by each adjudicator

2006
4.5
2005
4.4
2004
4.9
2003
4.9
2002
3.7
2001
3.3

our unit cost *

bar chart

2006
£433
2005
£496
2004
£473
2003
£518
2002
£684
2001
£753

*Our unit cost is calculated by dividing our total costs (before financing charges and any bad debt charge) by the number of cases we complete.

Our unit cost for the year was £433 - compared with a figure of £496 in the previous year. This 12% decrease resulted from our lower than budgeted expenditure - spread across a higher number of resolved cases.

Our productivity - which we define as the average number of cases resolved weekly by each adjudicator - was 4.5, compared with the figure of 4.3 that we had planned for in the budget. In previous years’ annual reviews we explained that the productivity levels we achieved in 2003 and 2004 reflected exceptional circumstances specific to that period - involving large economies of scale, changes to our case-handling process and significant amounts of staff overtime - in response to the first waves of increased numbers of mortgage endowment cases.

On a statutory accounting basis, the financial deficit for the year of £0.3m has reduced our surplus to £3.9m. The overall surplus was reduced for the first time by the deficit of £2.3m on our closed final salary pension scheme. Our policy on financial reserves, agreed after consultation with the financial services industry, is to keep no more than 5% of our expected annual expenditure - and to return any amount over this to firms, by reducing the amount of the annual levy in the following years.

More information about our finances is available in the detailed financial statements.