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ombudsman news

issue 77

May/June 2009

ombudsman news "Q&A" page

featuring questions that businesses and advice workers have raised recently with the ombudsman's technical advice desk - our free, expert service for professional complaints-handlers

When and how does the ombudsman add interest if it awards compensation to a consumer-

In complaints where a consumer has been wrongly deprived of a sum of money in the past - for example, where an insurance claim was wrongly rejected - we usually require the financial business to add interest from the date the consumer should have had the money until the date the money is actually paid.

In some cases, there will be an identifiable cost that the consumer incurred as a result of having to borrow money in the meantime. In other cases, there will be an identifiable loss of income on other funds that the consumer had to use instead.

But in most cases, the effect on the consumer's finances could only be discovered by making speculative assumptions. So unless it is apparent what the consumer's borrowing cost (or investment loss) actually was, we are likely to award interest at 8% a year simple.

The law requires the financial business to deduct lower-rate tax from this, and some consumers may also have to pay higher-rate tax - even if they had to pay non-tax-deductible interest on borrowing in the meantime.

The current low rates paid on deposit accounts are not an appropriate yardstick. The rates of interest consumers have to pay in order to borrow are much higher. And we are usually awarding compensation for past periods, when deposit rates were higher.

At the beginning of the year, ombudsman news mentioned a new definition for the type of business that can bring a complaint to the ombudsman. Has this happened yet-

Currently complaints can be made by, or on behalf of, customers (or potential customers) who are:

  • private individuals
  • small businesses with an annual turnover under £1 million (some other limits may also apply)
  • charities with a yearly income under £1 million
  • trusts with net assets under £1 million.

From 1 November 2009 these definitions will change, reflecting European Union law. The new definitions will be:

  • private individuals and
  • "micro-enterprises".

"Micro-enterprises" will be able to bring complaints to the ombudsman as long as they have an annual turnover of under 2 million euros (approx £1.7 million) and fewer than ten employees.

The proportion of complaints referred to us by smaller businesses increased slightly last year - from 2% to 3% of all cases. However, we know that sole traders, in particular, don't always register their complaint with us as a business complaint, because they often see the issues as personal rather than commercial. The small rise in complaints brought by businesses may reflect our outreach work in this area, which has included liaising with smaller-business trade associations and networks, taking part in events such as Business Start-Up shows, and arranging targeted coverage in specialist business-to-business publications.

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ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.