Pricewatch: Are consumers getting enough protection?

Lynda Sweeney’s world fell apart when her husband Aidan took his own life on August 3rd, 2009, but an unimaginably distressing situation worsened days later when her insurance company refused to pay out on a mortgage protection policy worth €220,000 because the policy had lapsed four days before the tragedy.

The insurer had cancelled the policy because insufficient funds were in the couple’s account for two successive months and, while it claimed three letters were sent to the couple and one to their building society warning them that the policy was due to lapse, Sweeney insists today she was never aware there was a problem and had never received any warning letters.

Her building society had no record of any correspondence. And, as registered post was not used, there was no proof any letters had been sent

The insurer wasn’t for budging, so Sweeney took the only avenue open to her and complained to the Financial Services Ombudsman (FSO), which said it was her responsibility to ensure premiums were paid. It accepted there should have been more communication with the broker with whom Ms Sweeney and her husband took out the policy and the claim went into the records as being “partly substantiated”. . . very partially. It awarded €500 to the widow, who was left with three young children and a mortgage she could not afford.

She feels let down by the FSO and she is not alone. While nowhere near as extreme a situation, a reader from Westport contacted us last week to express her disappointment at how her issue with a life assurance company was handled by the Ombudsman. She described the whole process as "a paper-pushing exercise" and said that "you need to have a law degree or be a very good actress to be able to take on your bank".

She was prompted to contact Pricewatch after reading a story in this newspaper about a major report by the Free Legal Advice Centre (Flac) into the level of consumer protection available to vulnerable people dealing with financial institutions. The report found that consumers were robbed of many of their rights and protections across the financial sector during the boom and it was critical of the FSO.

It described the process involved in making a complaint to it as “overly formal, impersonal, onerous and confusing to the extent that many consumer respondents appeared to have become almost completely lost in the process”.

It pointed out many complaints were coming from people in “recession-induced financial distress and within this context, the last thing such complainants needed was the additional stress of a demanding process”.

Further inequities
Consumers who had first-hand experiences of the process told Flac they "regretted the lack of opportunity to question their provider representative directly in the presence of an FSO official by way of an oral hearing" and it said consumers it spoke to "perceived [it] to be conservative and pro-provider".

The FSO rules in favour of consumers only a quarter of the time and two-thirds of the complaints are only partly upheld – which can mean as little as €500 in a case involving sums of €220,000.

Flac also highlighted what it believed to be further inequities in the system and pointed out that banks had “a natural advantage in terms of expertise and that advantage is sometimes exacerbated by the welter of technical documentation that is often sent by the provider in the course of responding to the complaint”.

It said that it was only at this point that consumers started realising how difficult the process might be “and there is no designated service where assistance can be found for consumers to formulate their arguments at the commencement and during the course of the handling of complaints”.

The bottom line, according to Flac, was that an alternative dispute resolution process for financial service disputes outside of the courts is needed and it called for a “fundamental review and evaluation of the scheme as a prelude to amending the legislation which established the Financial Services Ombudsman, to the process which it administers, and to the appeals process, are all required.”

It said the “current situation where consumers with complaints are designated as equals to much more powerful and better resourced financial service providers and where they are, in Flac’s view, often unfairly treated as a result, must be addressed.”

In the wake of the report being published, Pricewatch spoke to the Financial Services Ombudsman Bill Prafiska last week. While he said Flac was "perfectly entitled to its views" he offered a robust defence of his office and the role it plays in adjudicating on disputes.

He accepted that the system was formal and complicated but added that the voluminous amounts of paperwork was required by law. “We are accessible and we are fair. When it comes to adjudications we are not an industry advocate or a consumer advocate. We aim for fairness.”

He said calls for more oral hearings could lead to a more intimidating process and said that “the notion that an oral hearing would favour the complainant is wrong”. He pointed to the requirement for witnesses to be sworn in and accepted that the quasi-judicial system can be difficult for complainants.

“The big advantage the providers have is the amount of interaction they have with you. From that interaction we expect them to learn and to understand how we approach cases and when they see that they are going to lose we expect them to act accordingly” and reach accommodations with complainants.

He cites the example of Ulster Bank which left hundreds of thousands of customers without access to their funds for nearly two weeks in the summer of 2012. The complaints to the FSO about the bank have all but dried up because the Ombudsman has made it clear how it deals with such issues and has little patience with the bank for dragging its heels when it comes to resolving outstanding issues.

He also believes the FSO’s new power to name and shame providers has made them less likely to allow complaints to the ombudsman run their full course as they might have done when they could hide in the shadows.

Advocate for consumers
While it can now name individual providers, it can still not provide many details of its adjudications and Prafiska accepts that legislation has led to a lack of transparency. "Other jurisdictions have gone much further down the road in reporting on individual findings and in a much more transparent way. There is much more that could be done."

The problem is not so much what the FSO does or does not do but what it is allowed to do by law. Many people think it is – or it should be – an advocate for consumers and not an impartial observer. When asked should such a role be created to help people in their dealings with the FSO, he says: “That should be part of the public debate. We have no objection to that in principle.”