BILL PRASIFKA, THE current Financial Services Ombudsman (FSO) has been lauded for his ‘success’ as portrayed in this recent published report. He is at pains to describe his Office as serving as adjudicator and not regulator, which is correct given his legal charter as set out in the Central Bank and Financial Services Authority of Ireland Act 2004.
It is worth reading between the lines of the report of the FOS that was published earlier this month. When one examines the meaning of the word ‘Ombudsman’, one sees a red light, in so far that it is defined [in the Wordbook Dictionary App] as:
A government appointee who investigates complaints by private persons against the government.
A flag on the true independence (of lack of same) of the Office of the FSO, is the enthusiasm and energy expended by financial institutions in manipulating complainants by hard-selling the FOS complaints scheme. The financial institutions are targeting valid complaints that, if upheld, could open expensive floodgates of related claims. They use the FOS as a type of trap-door to ensnare and then neutralise this class of consumer complaint.
Increase in complaints made
From a glance through the recently published FOS bi-annual review, total complaints for 2012 were 8135, representing an increase of 12 per cent on 2011. Banking-related complaints consisted of one-quarter of these and this category of complaint in particular doubled in volume over the second 6-month period. Aggregate claims upheld were 2990. Therefore a rough approximation of the average award per successful (upheld) complaint is €585. In my opinion this yardstick demonstrates a distinctly unimpressive performance of the FOS.
According to the recent review complaints alleging mis-selling of investment and mortgage products more than trebled to 1,280 last year. In the writer’s experience, this is a scheme, whereby ‘legitimately’ (within his appointment mandate) the FOS can entirely ignore the impact of prime documentary evidence in the form of fact-finds or ‘reasons why letters’, and generate its own highly questionable adjudication, very frequently in favour of the offending the financial institutions.
These two items of bank documentation, if constructed correctly by bank advisors, are supposed to be critical statutory consumer protections enshrined in the Consumer Protection Codes of 2006 and 2012.
The hazards of ‘the ripple-effect’
However, in a number of instances, financial institution advisors ’expeditiously’ overlook their mandatory correct usage, without subsequent sanction by the FOS. This type of suspect practice is actually enshrined in the FSO’s governing legislation, which states:
.. specify circumstances in which the Financial Services Ombudsman can dismiss a complaint without considering its merits.
In the cases of potential mis-selling of Investments, it appears that the FOS avoids upholding high-value complaints due to the hazards of the ripple-effect, whereby alarm bells will loudly sound from other similarly affected/wronged consumers. There is a trend whereby the FSO (who is indirectly a Government appointee, through his directly Government-appointed Council) steers clear of making substantial case awards against financial institutions, particularly those that are wholly or partly owned by that same State.
This is particularly offensive, when the complaining consumers are unsuccessful in having their complaint upheld, and so are unable to get back their own money, which in some case consists of the bulk of their life savings.
Neutralising potentially far-reaching complaints
After he produces his adjudication, the disputing parties have 28-days before it becomes legally binding on both sides. Alternatively, one party can apply for an Appeal to the High Court within this timescale. Such an Appeal necessitates the appointment of a legal team by an offended individual. This takes the wronged bank client into (for many) unchartered waters of lawyers and their strait-jacket up-front legal costs, and into the rolling of the dice in the court.
A potential reason for the High Court as an appeal option (as opposed to lower courts – with inherent lower scales of costs), is to dissuade potential appellants from proceeding with appeals in this second tier of ensnaring and neutralising potentially far-reaching complaints.
All financial institutions have specialist units of highly trained legal practitioners, in addition to panels of commercial barristers in the private sector. These are easily mobilised by the financial institutions, both during a complaint investigation by the FSO and also in the event of a High Court appear of a FSO finding.
Costs to complainant
However the complainant, frequently a private individual who has already lost substantial sums at the hands of his/her offending financial institution, cannot recruit equivalently qualified specialists, unless he/she takes direct responsibility for such professional costs (which are irrecoverable).
The current FSO appears satisfied with his role and performance, since his principal aspiration appears to have the governing legislation (for his role) to be amended, so that his annual reports can ‘name and shame’ consistently offending banks. If he is interested in achieving consumer gratitude, he would be better advised to lobby his recruiters for a far higher level of demonstrable autonomy.
Mr Prasifka said the complaints trend in 2012 is of great concern. What should be of even greater concern to consumers is the performance of the FOS.
Ronan Coburn is a Dublin-based Forensic Accountant and Independent Banking Consultant