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consultation paper - June 2006 rules for the new consumer credit jurisdiction - chapter 3 scope of the ombudsman service

activities covered

3.1 The Consumer Credit Act 2006 sets out the consumer credit activities which will be subject to the ombudsman service. These are as follows, in respect of businesses that hold standard licences:

(a) consumer credit This covers a wide range of lending and credit, including personal loans, overdrafts, budget or subscription accounts, hire purchase, credit cards, store-cards and deferred payment schemes.

(b) consumer hire This covers hiring out, renting out or leasing out goods under transactions that are capable of lasting more than three months.

(c) credit brokerage This involves the introduction of a customer to a credit provider or to another credit broker - including, for example, where a retailer such as a car dealer recommends a particular credit provider.

(d) debt adjusting This involves taking over a debt, or negotiating terms with a creditor on behalf of a debtor, under a consumer credit or hire agreement. This could include, for example, a car dealer settling outstanding finance on a part-exchange vehicle.

(e) debt counselling This involves giving advice to consumers about the payment of debts under consumer credit or hire agreements.

(f) debt collecting This involves the collection of debts due to others under consumer credit or hire agreements.

(g) debt administration This involves taking steps (other than debt collection) on behalf of a creditor or owner under a consumer credit or hire agreement.

(h) provision of credit information services This involves advising or acting on behalf of an individual to ascertain the existence or contents of information held by a credit information agency, as well as securing the modification, deletion or non-provision of that information to another person.

(i) operation of a credit reference agency This involves the collection of information about the creditworthiness of individuals with a view to giving this information to others.

[The brief summary of each activity is ours. Please refer to the legislation for the full definitions.]

3.2 The ombudsman service will also cover any ancillary activities, including advice, provided by a business in connection with the activities listed in paragraph 3.1.

3.3 For activities (a) to (f) and (i), the ombudsman service will open on 6 April 2007. The government intends that the ombudsman service will open for activities (g) and (h) on 1 October 2008.

3.4 The ombudsman service will handle complaints about acts or omissions by businesses with standard licences issued by the OFT under the Consumer Credit Act. The act or omission complained about must have happened at a time while the relevant business held a consumer credit licence and also:

  • in relation to activities (a) to (f) and (i), on or after 6 April 2007;
  • in relation to activities (g) and (h), on current plans, on or after 1 October 2008.

territorial scope

3.5 The ombudsman service will cover complaints about the activities of consumer credit businesses operating from an establishment in the United Kingdom, irrespective of whether the customers concerned are based in the UK or elsewhere. Other than for businesses that choose to participate in the VJ, the service will not cover the activities of businesses based outside the UK whose activities are directed at customers within the UK.

businesses covered

3.6 The ombudsman service will cover all businesses with standard (but not group) consumer credit licenses issued by the OFT under the Consumer Credit Act. This includes licensees who are also authorised by the FSA (and so covered by the ombudsman service’s compulsory jurisdiction) or who are already members of the ombudsman service’s voluntary jurisdiction. Chapter 2 explains our proposals for ensuring that the rules apply similarly to each of these categories of licensee.

3.7 The 2006 Act provides that a complaint can be dealt with under the CCJ as long as the business was a standard licensee at the time of the act or omission being complained about, and as long as that act or omission took place after the CCJ was brought into force (6 April 2007 for most types of business). This means that the ombudsman service can also continue to apply to businesses for previous acts or omissions after they give up their consumer credit licence.

complainants covered

3.8 In principle a person can take a complaint to the ombudsman service if they are an existing, past, potential or indirect customer of a business and the complaint is about that business’s consumer credit activities. Precisely who is eligible to complain has to be set out in the consumer credit rules.

3.9 Under the rules which currently apply in the CJ or VJ, a person can complain if they are:

(a) a private individual;

(b) a business with a group annual turnover of less than £1 million at the time they make the complaint to the business concerned;

(c) a charity with an annual income of less than £1 million at the time they make the complaint to the business concerned; or

(d) the trustees of a trust with net assets of less than £1 million at the time they make the complaint to the business concerned.

3.10 Under the Consumer Credit Act, however, the persons potentially eligible to complain are slightly different, namely:

(e) a private individual;

(f) a partnership consisting of two or three persons not all of whom are bodies corporate;

(g) an unincorporated body of persons which does not consist entirely of bodies corporate and is not a partnership, and

(h) a surety in relation to a security provided to a consumer credit business.

3.11 The £1 million limit at (b) to (d) is intended to limit the type of entity that can use the ombudsman service (as a complainant) to those who are small, as it is these for whom the ombudsman service would be a more appropriate route for redress than the courts. Assuming that it would be appropriate to retain this limit for all complainants under the CCJ, there would then be a slight mismatch between the entities eligible to complain at (b) to (d) and those at (f) and (g). In particular, more entities would be covered by (b) to (d) than by (f) and (g). This means that, in principle, slightly fewer entities would be able to make complaints about consumer credit activities than about other financial activities.

3.12 There are broadly two options for handling this:

  1. apply the limitations at (f) and (g) to all complaints about consumer credit, including those which can currently be taken under the CJ or VJ, or
  2. apply the limitations only to complaints where the Consumer Credit Act limitations apply, namely to those firms subject to the CCJ and who are not subject to the CJ or VJ.

3.13 Option (1) has the advantage that the limitations for complaints about consumer credit activities would be consistent across the three jurisdictions, so that there would be no situations where an individual or entity would be able to take a complaint against one type of consumer credit business (eg one in the CJ) but not against another type (eg one in the CCJ). This option would, however, involve taking away the present right of some entities to take consumer credit complaints to the ombudsman service under the CJ. The entities concerned would be those under the relevant £1 million limit which are a partnership consisting of more than three persons, a partnership all of whose members are companies, an unincorporated body which consists entirely of companies, or a company.

3.14 Option (2), however, has the advantage that the entities which would have lost the right under option (1) to take consumer credit complaints to the ombudsman service under the CJ would retain this right. No individual or entity would therefore lose the right to take a complaint to the ombudsman service. On the basis that we do not believe that it was envisaged that the new ombudsman service for consumer credit would lead to any person losing an existing right to take complaints to the ombudsman service, we propose to adopt option (2). This option will also be simpler for FSA-regulated businesses, as the test for complainant eligibility will be the same for all their activities. The proposed consumer credit rules in Annex B reflect this.

3.15 It should be noted that, under option (2), it would be possible for the entities set out in paragraph 3.13 above to take a consumer credit complaint to the ombudsman service if the business complained about is subject to the CJ or the VJ, but not if the business complained about is subject to the CCJ - because of the limitations in the Consumer Credit Act outlined at (f) and (g) above.

Q3Do you agree that the limitations on eligible complainants in the Consumer Credit Act should apply only to complaints against businesses covered by the CCJ?

complainants covered - exceptions

3.16 Apart from the limited exceptions outlined above, there are a number of other persons who are not eligible to take complaints to the ombudsman service. These include a business whose complaint relates in any way to an activity covered by the ombudsman service and which the business itself carries on. This would cover, for example, a loan intermediary who wished to complain about the activities of a lender. Such businesses would not be able to take such a complaint to the ombudsman service.

3.17 The existing rules that apply to the CJ and the VJ also specify a small number of other persons who are not eligible to take complaints to the ombudsman service.

potential customers

3.18 A person who is not a customer of a business may still take a complaint to the ombudsman service if their complaint concerns the business’s actions towards them as a potential customer. This allows a potential customer to use the ombudsman service where the complaint involves an allegation that they have suffered or may suffer financial loss, material distress or material inconvenience as a result of a business’s wrongful act or omission. An example of this would be where, as a result of maladministration or illegal discrimination, a service has not been provided to the potential customer.

indirect complainants

3.19 In addition to customers and potential customers, the rules specify a number of other persons who may take a complaint to the ombudsman service if the complaint alleges that they have been adversely affected by the business’s actions or omissions. In relation to consumer credit, examples of this include:

(a) where a guarantor for someone else’s debt complains about the creditor’s actions towards the guarantor;

(b) where a person is affected by the information a credit reference agency holds about them; or

(c) where a person complains about the actions of a debt collector acting against them on behalf of a creditor.

representatives

3.20 Most complaints are taken to the ombudsman service by the complainants themselves. But a complaint can also be taken to the ombudsman service on behalf of an eligible complainant, or on behalf of a deceased person who would have been an eligible complainant, by a person authorised by the eligible complainant or authorised by law.

3.21 The representative taking the complaint to the ombudsman service on behalf of the complainant does not need to be an eligible complainant. A person is not prevented from acting as a representative if they are a customer of the business complained about, have a claim of their own against the business or are acting for another complainant against the business.

complaints covered - time limits

3.22 There are time limits which restrict when complainants may refer their complaint to the ombudsman service. Some of these limits hinge on whether, and if so when, a business has sent the complainant a “final response letter”. A final response letter is a written response from the business which:

  • accepts the complaint, and, where appropriate, offers redress; or
  • offers redress without accepting the complaint; or
  • rejects the complaint and gives reasons for doing so;

and which informs the complainant that, if they remain dissatisfied with the business's response, they may now refer the complaint to the ombudsman service (enclosing the Financial Ombudsman Service’s leaflet) and that they must do so within six months.

3.23 The ombudsman service cannot consider a complaint if the complainant refers it to the service:

(a) less than eight weeks after receipt of the complaint by the business, unless the business has already sent the complainant its final response; or

(b) more than six months after the business sends the complainant its final response; or

(c) more than six years after the event complained of or (if later) more than three years after they became aware (or ought reasonably to have become aware) that they had cause for complaint.

3.24 There are three exceptions to these limits:

(d) in the case of (c) above, where the complainant has referred the complaint to the business or to the ombudsman service within that period and has a written acknowledgement or some other record of the complaint having been received;

(e) where the business does not object to the ombudsman service considering the complaint; or

(f) where, in the view of the ombudsman, there were exceptional circumstances which prevented the complainant from complying with the time limits.

3.25 Examples of exceptional circumstances under (f) might be where the complainant has been incapacitated, or where the business has failed in its final response to inform the complainant that they may refer their complaint to the ombudsman service or that they must do so within six months.