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consultation paper - June 2006 rules for the new consumer credit jurisdiction - chapter 4 complaint handling by businesses

general principles

4.1 The ombudsman service will not consider a complaint until the business has had an opportunity of considering it. It is important that businesses have their own complaint-handling arrangements, and it is expected that these will resolve the majority of complaints.

4.2 Businesses regulated by the FSA are already subject to rules about how they should handle complaints from consumers. These rules cover a range of issues, including internal complaint-handling procedures and controls, publicity, time limits, the requirement for a final response letter, rules on referral of complaints to others, and requirements to co-operate with the ombudsman service. There are also rules on keeping records of complaints and reporting these to the FSA.

4.3 In line with the principle that the consumer credit rules should, to the maximum extent possible, mirror the rules currently in place for businesses already covered by the ombudsman service (see chapter 2) we propose, with one exception, to apply the existing complaint-handling rules to those businesses to be covered by the CCJ.

4.4 The exception is that we do not intend to apply to businesses covered by the CCJ the rules on keeping records of complaints and reporting these to the FSA - reflecting the fact that the FSA is not the relevant regulator for CCJ participants. The ombudsman service is not a regulator and does not have facilities to monitor how firms act generally, and the burden on businesses of record keeping and reporting rules would not be proportionate to the benefits to be achieved.

4.5 But businesses covered by the CCJ would be well-advised to keep sufficient records to enable them to deal with any complaints that are referred to the ombudsman service. If there is any dispute about what happened, the ombudsman service must decide on the balance of probabilities in the light of the available evidence - so any business that has not kept appropriate records will be at a disadvantage.

Q4 Do you agree that the rules on recording and reporting of complaints should not be applied to businesses covered by the CCJ?

4.6 There might be occasional one-off exceptional circumstances in which a business’s compliance with aspects of the complaint-handling rules would be unduly burdensome or would not achieve the purpose for which the rules were made. We therefore propose that the Financial Ombudsman Service should have the power to dispense with or modify the application of the consumer credit rules in such cases. Application of such a power would be subject to the requirement that this would not result in undue risk to those whose interests the rules are intended to protect. This is to ensure that the possibility of a consumer seeking and obtaining appropriate redress is not adversely affected.

Q5 Do you agree that the Financial Ombudsman Service should have the power to dispense with or modify the application of the complaint handling rules where this would be unduly burdensome, or would not achieve the purpose for which the rules were made?

4.7 The draft consumer credit rules in annex B reflect the proposals above. What the proposed complaint handling rules mean for businesses covered by the CCJ is explained below.

requirement to have a complaint handling procedure

4.8 Each business must have in place and operate an appropriate and effective internal complaints handling procedure. This procedure would be for handling any complaints from a person who would be eligible ultimately to take their complaint to the ombudsman service. The procedure should be appropriate to the type and size of the business, the activity it undertakes, and to the nature, complexity and number of the complaints it is likely to receive. This could include the possibility of using a third party administrator to handle complaints. If one business markets consumer credit products on behalf of another, both businesses should specify in their complaints handling procedure how complaints would be referred between them.

4.9 The business must take appropriate steps to publicise the existence of the complaints-handling procedure. This includes at or immediately after the point of sale and when a complaint is made. The business must also display, at each of its branches or sales offices to which eligible complainants have access, a notice indicating that it is covered by the Financial Ombudsman Service.

4.10 The complaints handling procedure should provide for complaints to be investigated by an employee of sufficient competence who, where appropriate, was not directly involved in the matter complained about. The employee responding to complaints should have the authority to settle them and to offer redress where appropriate, or have ready access to someone who has the authority. Responses to complaints should adequately address the subject matter of the complaint and, where it is upheld, offer appropriate redress.

4.11 Where the business decides that redress is appropriate, it must provide fair compensation for any acts or omissions for which it was responsible. If the complainant accepts an offer of redress, the business must honour this. Appropriate redress might not always include financial compensation, and could in some circumstances simply consist of an apology.

4.12 The business must take reasonable steps to ensure that all relevant employees are aware of the complaints handling procedure and must endeavour to ensure that they follow it. The business must also put in place appropriate management controls to ensure it handles complaints fairly, consistently and promptly, and that it identifies and remedies any recurring or systemic problems with the procedure.

procedural rules

4.13 The rules lay down certain procedures which businesses must follow when handling complaints. This is a summary of those procedures. They do not apply where the business resolves the complaint on the spot or by close of business on the next business day, or where the complainant is not someone eligible to complain to the ombudsman service.

4.14 Otherwise, the business must send a written acknowledgement to the complainant within five business days of receipt of a complaint. This acknowledgement must give the name or job title of the employee handling the complaint, together with details of the business’s complaints handling procedure.

4.15 The business must then, within four weeks, send the complainant either a “final response letter” (see the explanation of this at paragraph 3.22) or a holding response indicating when the business will be making further contact. Then, within eight weeks of receipt of the complaint, the business must send the complainant either a final response letter or a response that explains the delay and the next steps and informs the complainant that they can now take the complaint to the ombudsman service. In both instances the business must enclose a copy of the Financial Ombudsman Service’s leaflet.

4.16 The rules recognise that some larger businesses may operate a two-stage complaints-handling procedure (which might, for example, involve offering complainants the opportunity to appeal to head office if they are dissatisfied with an initial offer to resolve a dispute). There are therefore some modifications to the rules in the previous paragraph to allow a business to use this procedure, without taking away the complainant’s ability to take their complaint to the ombudsman service after the relevant eight week period.

4.17 If a business has reasonable grounds to believe that another business may be solely responsible for a complaint, the complaint may be referred to that other business. This must be done within five business days of the business identifying that the other business is responsible. Information about the complaint should be referred using a “durable medium”, which would include letter, email, floppy disk, CD-ROM or DVD. The original business must then tell the complainant of the referral by means of a final response letter which includes the other business’s contact details.

4.18 Once the business responsible has received the complaint referred to it by the original business, the procedural rules outlined above then start to apply. The receiving business thus has to send an acknowledgement to the complainant within five business days. If the two businesses are jointly responsible for a complaint, the original business must continue to respect the original time limits as if it were solely responsible.

co-operation with the ombudsman service

4.19 The rules say that a business must co-operate fully with the ombudsman service in the handling of complaints against it. In practical terms this means, for example, sending in documents when asked to do so, respecting any deadlines given, attending hearings if asked to do so, and complying promptly with any settlements or awards.