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case studiesUnable to resolve matters with thestop once they handed in the keys. Theybuilding society, Mr and Mrs A referredhad also expected the building society tothe dispute to us.contact them and obtain their signaturesbefore selling the house. We explainedcomplaint upheld in partthat handing in the keys to a mortgagedThe building society was unable toproperty does not, of itself, stop interestexplain its delay in putting the propertyaccruing on the mortgage account.on the market. However, we were satisfiedWe also explained that as they hadfrom the evidence that, once it set outhanded back their house voluntarily, theto sell the house, it had obtained properbuilding society had not been obliged tovaluations and had achieved the bestget their signatures on the sale papers.price reasonably available at the time.But we agreed with Mr and Mrs A that theIn the particular circumstances of thisbuilding society should have kept themcase, we could not see that Mr and Mrs Ainformed about the sale. And we thoughthad been caused any loss. There wasthe building society should have takennothing to back up their view that themore trouble to ensure they fullybuilding society would have got a higherunderstood the implications of handingprice by selling the house right away.back the keys of their house. It wasThe house had been on the market forunlikely that this would have madeover a year by the time the couplethe couple alter their plans. But it woulddecided to hand in the keys. The fewat least have spared them someoffers they received in that time had beenof the surprise and dismay they feltvery disappointing and – if they hadwhen they were subsequently askedaccepted any of them – they wouldto repay the shortfall.probably have been left with a shortfall,after the sale, of around 13,000.We did not agree with Mr and Mrs Athat the building society should takePart of Mr and Mrs A’s dissatisfactionresponsibility for the shortfall. But westemmed from their assumption that thearranged for the building society tointerest on their mortgage debt wouldreinstate its offer of an interestconcession, which Mr and Mrs AJune/July 2008 ombudsman news issue 707

case studies. the lender’s letter didnot explain the figures as well asit might have done.had refused when the building societyAfter receiving her next mortgagehad first suggested it. We said that thestatement, Miss G contacted her lenderbuilding society should also reduce theto complain. She said it had ‘overchargeddebt by 300 to compensate Mr andfor interest on the January overpaymentsMrs A for the inconvenience causedof 1,501.79’, with the result that herby its poor communication.monthly repayment from February wasmore than it should have been.complaint not upheldI 70/3We looked carefully at what Miss G’scustomer misunderstands calculation ofmortgage agreement said aboutinterest on overpayments made to heroverpayments. This clearly stated that,mortgage accountfor interest purposes, monthlyoverpayments took effect from the firstThe terms and conditions of Miss G’sday of the following month, while interestmortgage allowed her to make additionaltook effect immediately on largercapital repayments of up to 500 eachoverpayments that were made annually.month – without incurring any charge.She was also able, each January, to makeWe were satisfied that the lender hadone additional capital repayment of attreated Miss G’s payments in Januaryleast 1,000 – again without charge.2008 correctly; her overpayment of 1,000 reduced her interest immediately.In January 2008 she decided to make anThe problem seemed to stem from herextra capital repayment of 1,000mistaken assumption that the total– and on 16 January she sent her lenderamount she had paid in January was ana cheque for this amount. On 30 Januaryoverpayment. In fact, the payment ofshe made her normal monthly repayment 501.79 was simply her regular monthlyof 501.79 by direct debit.8ombudsman news issue 70June/July 2008

case studiesrepayment, which did not qualify forsupporting their mortgage had been setspecial interest treatment.up for a 20-year term. The mortgage itselfhad been arranged with a 25-year term.We explained this to Miss G and sent hera simple calculation to show that theMr and Mrs W wrote to the lenderinterest had been treated correctly andcomplaining of ‘mis-selling’, on thethat the balance carried forward on hergrounds that the terms of the mortgageaccount for February 2007 was correct.and of the endowment policy did notThis had been shown on her annual‘match’. The lender’s response focused instatement in March 2007, but we did notsome detail on why it did not think anythink that the lender’s covering letter,mis-selling had taken place. However, itsent with the statement, explained thefailed to address the couple’s specificfigures as well as it might have done.concerns about the length of the loan notAnd unfortunately the lender’s‘matching’ that of the endowment policy.subsequent correspondence with Miss GThe couple remained worried about thisfailed to explain the situation clearlyand, unable to obtain any moreenough to reassure her and settleinformation from their lender, theymatters at that stage.eventually brought their complaint to us.At the time the mortgage had beenset up there was no requirementI 70/4for mortgage lenders to keep detailedcustomers complain of mis-sellingrecords. The paperwork suggested thatbecause their mortgage loan has aMr and Mrs W had probably asked for thelonger term than the endowment policy25-year term, but there was no indicationset up to repay itof whether the lender had discussedthis with them.Ten years after taking out an interest-onlymortgage supported by an endowmentBut regardless of why the terms of thepolicy, Mr and Mrs W unexpectedlymortgage loan and the endowment policyinherited some money and decided todiffered, the main point as we saw it waspay off their mortgage.that the difference had not disadvantagedMr and Mrs W in any way. They paid onlyJune/July 2008When they checked through theirthe interest on their loan, so their monthlymortgage paperwork they were alarmedrepayments would have been the sameto discover that the endowment policyno matter what term they chose. ombudsman news issue 709

case studiesAnd the endowment policy was well ontrack to produce enough – at the end ofits 20-year term – to repay theoutstanding mortgage loan.We explained all of this to Mr and Mrs W. frustrated by thebank’s apparent inabilityto explain matters, she madea formal complaint.and told them that as they had notsuffered any loss or damage we did notthink we should investigate any further.Reassured by our explanation, the coupleagreed that they had no need to pursuethe complaint.Mrs M decided to stop making anymortgage repayments for a while. Shereasoned that the bank would be able toI 70/5take her monthly repayments from thebank fails to provide clear explanationaccumulated overpayments she had beenwhen customer queries mortgagemaking over the years. When this ‘fund’balance after temporarily stoppingstarted to run out – the bank wouldher monthly repaymentspresumably let her know and she wouldthen start making repayments again.Mrs M had a mortgage from her bankand, because she was easily able toMrs M assumed that, until she resumedafford it, she had for many years beenthe repayments, her mortgage balancemaking a significantly larger repaymentwould effectively stay level – to reflecteach month than the scheduled amountthat fact that she had ‘stored up’she was contracted to pay.so many payments in advance. She didnot mention her plan to the bank.When she was in a branch of the bankone day, withdrawing some cash,A few weeks after deciding to stop herit occurred to her to ask how far aheadmonthly payments, Mrs M received hershe was with her mortgage. She wasannual mortgage statement. She had notold she was ‘about ten years aheadfurther contact from the bank about herwith payments’.mortgage until she received the nextannual statement. She was concerned10ombudsman news issue 70June/July 2008

case studiesto discover from the statement thatShe had made certain assumptionsher mortgage balance had increased.about what would happen to herShe could not understand this andmortgage if she stopped makingthought the bank must have madepayments. Unfortunately, she hada mistake.never checked with the bank that herassumptions were correct. So we did notWhen she contacted the bank to askthink the bank could fairly be responsiblewhat had happened, it sent her somefor the fact that things did not go ascalculations which made no sense to her.she had expected.She asked for an explanation and thebank wrote to her again. However, it stillHowever, we agreed with Mrs M that thefailed to explain why her balance hadbank had not dealt adequately with herincreased. Mrs M contacted the bank yetqueries. It had failed to give her a clearagain. This time she was simply told thatexplanation about the increase in thethe situation could have been avoidedmortgage balance – and its referenceif she had asked for a formal ‘paymentto a ‘payment holiday’ had not helpedholiday’ to be set up on her account.her understanding of the situation.Frustrated by the bank’s apparentWe explained to Mrs M that although theinability to explain matters, Mrs M thenextra payments she made could be usedmade a formal complaint. She said thatto meet future payments as they fell due,the bank should have taken more troublethis did not stop interest being chargedto offer her advice about her mortgageon the balance of the account in theoverpayment – and she believed therenormal way. So the mortgage balancewould have been no increase in herincreased over time even though she wasbalance if it had done this.always ahead with repayments. A formalpayment holiday arrangement would notcomplaint upheld in parthave made any difference.Mrs M had not asked the bank how best tomanage the overpayment on her mortgageWe said the bank should pay Mrs Taccount. And she had not sought its advice 100 to reflect the inconveniencebefore deciding to stop her payments.it had caused her by its failure toIn the circumstances, we did not considerexplain matters properly.the bank was under any obligation tooffer her advice on its own initiative.June/July 2008ombudsman news issue 7011

ombudsman focustechnical advice deskThis month’s ombudsman focus provides a round-up of some of thequestions put to our technical advice desk recently about changes tothe dispute resolution (DISP) rules.I run a small financial services business.prescriptive – but the basic process remainsI hear that the dispute-resolution (DISP) rulesthe same. You must still publish details ofhave been updated. Is that right?your complaints-handling process (includingYes. Updated rules about how you deal withaccess to the ombudsman service) and makecomplaints in-house (DISP 1) came into forcethis available around the point of sale.on 1 November 2007 – with a couple of minorBut you no longer have to displayamendments following on 6 July 2008.a notice saying you are covered by theUpdated rules describing the ombudsmanombudsman service.service’s jurisdiction (DISP 2) and ourprocedures (DISP 3) came into force fromI hope my business never receives a6 April 2008.complaint, but what changes are thereif I do receive one?who updated the rules and why?You must still send the consumer anSome of the DISP rules are made by the FSA.acknowledgement and provide a copy of yourThe others are made by the ombudsmancomplaints-handling process, but the rulesservice, and approved by the FSA. We workednow require you to do this ‘promptly’ rathertogether on the changes, which werethan within a set time of 5 days. And the rulesdesigned mainly to make the rules shorternow require you to keep the consumer(by about 30%) and easier to understand.informed about your investigation of theThe DISP 1 rules also take account of thecomplaint, rather than requiring a letter at theEuropean Markets in Financial Instruments4-week stage.Directive (MiFID), but that only affects crossborder branches doing investment business.have the rules about written responsesand final responses to consumer12well, mine is just an ordinary businesscomplaints changed?(with no cross-border branch) – so how doThe rules about responses remain largely thethe updated rules affect me when I’m dealingsame – though you can no longer getwith complaints?consumers to settle on the basis of an interimYou will find the rules easier to read, and lessresponse without telling them about theombudsman news issue 70June/July 2008

Financial Ombudsman Service. And, whereassignment (as before) but also whereresponses are required to mention thethere is an equitable assignment.ombudsman service, this must now be in theSecond, the position on third parties hasletter itself and not just in an enclosed leaflet.been clarified; under the rules, third partiesinvolved in motor accidents are not nowhow have the rules on the ombudsmaneligible complainants.service’s jurisdiction in DISP 2 changed?Again, you will find the rules easier to read –are the time limits still the same?and they are set out in a new order.There have been no changes in the timeFirst, they explain which business activitieslimits for referring a complaint to theare covered by the ombudsman service (byombudsman service.type and where they are carried on);then, which consumers are eligible to complain;so are there any changes in DISP 3, the rulesand finally, the time limits which apply.about the ombudsman service’s procedures?The overall procedures remain basicallyare the business activities covered still thethe same, but the opportunity has beensame as before?taken to clarify a few points on whichThere is no change to the activities coveredsome businesses (and some consumers)by our compulsory jurisdiction and thewere unclear.consumer credit jurisdiction (which applyautomatically to FSA-regulated firms,what sort of points do you mean?businesses with standard consumer-creditWell, consumers sometimes get confusedlicences and to former firms and licensees) –about who their complaint is against –though the rules clarify that ‘ancillaryespecially where a couple of financialbanking services’ include foreign exchange.businesses are involved, for example aninsurance broker and an insurance company.There is a change for the voluntaryThe new rules make it clear that thejurisdiction (which some businesses chooseombudsman service can point the consumerto join). This has been extended to cover alltowards the correct business.activities directed at the United Kingdom fromelsewhere in the European Economic Areathat seems sensible – but what if a singlewhich would have been covered by theconsumer’s complaint genuinely involves twocompulsory jurisdiction or consumer creditbusinesses?jurisdiction if carried on from the UK.In that case, the new rules clarify that we canlook at both aspects of the case through ahave there been any changes to the types ofsingle investigation, though we will still issueconsumer who are eligible to complain?a separate decision in respect of eachThese remain the same except in two cases.financial business. And, where appropriate,First, the assignee of an insurance policywe can apportion the consumer’s loss betweenis now eligible not only where there is a legalthe businesses which contributed to it.June/July 2008 ombudsman news issue 7013

is there anything else?Where appropriate, an ombudsman can hold ato deal separately with each of the partnershearing by phone. And, in line with partnershipin a partnership – one partner, on behalflaw, the rules confirm that we are not requiredof the partnership as a whole, suffices.%useful linksThe rules are at http://fsahandbook.info/FSA/html/handbook/DISPThe changes are explained in policy statements icy/2007/07 09.shtml(most of the DISP 1 y/Policy/2008/08 03.shtml(mainly the DISP 2 and 3 changes – including, in annex 3, a summary of the mainchanges and tables reconciling the old rules with the new).Our technical advice desk answers a wide range of queries from financial businesses andconsumer advisers about the ombudsman service and how we operate – including providinginformal assistance on the ombudsman’s approach to particular topics.You can call the technical advice desk on 020 7964 1400 or emailtechnical.advice @financial-ombudsman.org.uk14ombudsman news issue 70June/July 2008

case studiesI 70/6consumer complains of being wronglyIn its response, the firm said that Mr Badvised to contract out of SERPShad been below the ‘pivotal age’ at thetime of the advice, and had been earningIn 1990 Mr B contacted the firm forenough for it to be reasonably confidentadvice about saving for his retirement.that contracting-out was suitable for him.He was aged 35 at the time and earning 18,000 a year. The firm told him heThe firm also said that when Mr B tookshould contract-out of the State Earningsout the policy he would have been sentRelated Pension Scheme (SERPS) andvarious policy documents, including anmake regular contributions to a personalexplanation that the pension benefitspension policy.were not guaranteed. Unhappy with thisresponse, Mr B asked the claimsAs the years went by, Mr B becamemanagement company to bring theincreasingly concerned about his pensioncomplaint to us.arrangements. Towards the end of 2007he asked a claims management companycomplaint not upheldto complain to the firm on his behalf.When considering whether it was suitableThe complaint centred on the firm’s advicefor a consumer to contract-out of SERPS,to contract-out of SERPS, which Mr Bfirms typically applied a ‘pivotal age’.considered to have been unsuitable.The idea was that consumers belowHe said the firm had not considered histhat age could find it beneficial toattitude to risk, or warned him that thecontract-out. There was a reasonablevalue of the pension he would get fromexpectation that the value of anythe policy was not guaranteed.National Insurance rebates, tax-reliefand government incentive obtained bycontracting-out would be greater than thevalue of the SERPS benefits given up. June/July 2008ombudsman news issue 7015

case studiesFor consumers above the pivotal age,I 70/7there was less time for investmentwhether firm calculated appropriate levelgrowth and therefore a greater risk thatof redress for pension mis-sellingthe consumer would be worse off thanif they had stayed in SERPS.In 1988, Mr J was working for C Ltd andwas entitled to join its final salary pensionWhen considering the suitability ofscheme. However, after consulting a firmcontracting-out, firms also needed toof financial advisers he took out aconsider the consumer’s earned income,personal pension instead.as the rebates and other amountsreceived when contracting-out wereLater on, the firm started to assess thebased on that income. People on loweradvice it had given Mr J – as it wasincomes received lower rebates, if any,required to do as part of the industry-wideand the charges they would have to paypension review. When it contacted Mr Jon a personal pension policy would havein connection with the review, he asked ita greater impact.to postpone work on his case. He wasaware that the review could result in hisIn this instance, we agreed with the firmreceiving redress – and he was anxious tothat Mr B had been below the pivotal ageavoid any increase in his assets while hewhen he was advised to contract-out, andwas going through divorce proceedings.his earnings had been high enough tomake contracting-out worthwhile. ThereIn 2006 Mr J took up a job with the Civilwas clear evidence that the firm hadService and joined its pension scheme.properly considered Mr B’s attitude toBy then he was divorced and he askedrisk. We were satisfied that the firm’shis financial adviser to complete itsadvice had not been unsuitable and hadwork on his case.not exposed Mr B to a de

2 ombudsman newsissue 70 June/July 2008 switchboard website consumer enquiries technical advice desk 020 7964 1000 www.financial-ombudsman.org.uk 0845 080 1800 020 7964 1400 (this number is for businesses and professional consumer