On 3 February 2021, the Financial Services and Pensions Ombudsman (FSPO) published volume 5 of his Digest of Legally Binding Decisions (Digest). Of the 20 decisions included in the Digest, 14 were upheld, at least substantially or partially, and 6 were not upheld. In this article, we examine recent trends in complaints to the FSPO by reference to the decisions in the Digest and some other recent developments.
1. Breakdown of the decisions in the Digest
In short, the 20 decisions can be summarised as follows:
9 financial services related decisions, of which 6 were at least partially upheld.
4 out of the 9 financial services related decisions concerned complaints regarding tracker mortgages. Of these 4 tracker mortgage related complaints, 3 were at least partially upheld. These 4 decisions are examined in further detail below.
6 insurance related decisions. 2 of these were not upheld and the remaining 4 were either substantially or partially upheld.
3 investment related decisions. 1 was not upheld, 1 was substantially upheld, and 1 was upheld in its entirety.
2 pension related decisions. 1 of these was not upheld and 1 was partially upheld.
2. Decision relating to an insurance policy appealed to High Court
An FSPO decision concerning a complaint regarding an insurance policy, which provided cover against structural defects in a property, has been appealed to the High Court by the insurance company. As with all FSPO decisions appealed to the High Court, the final decision will not be published by the FSPO pending the outcome of the High Court appeal process.
3. COVID-19 and the FSPO
The Digest provides some insight into the impact that Covid-19 has had on the operation of the FSPO. The FSPO's foreword contained in the Digest states that the FSPO office has "succeeded in meeting our 2020 targets for the closure of complaints", apparently due to a range of measures implemented to ensure continuity of service. This will be welcome news for providers and complainants alike, as the relative efficiency of resolving claims before the FSPO compared to the courts, does not appear to have been unduly impacted by Covid-19.
According to its website, the FSPO office's operations continue to be delivered by staff working remotely. The FSPO currently communicates with complainants and providers by email, and sometimes by telephone as appropriate. Formal documentation, including both the FSPO's preliminary decisions and legally binding decisions, are issued to parties by way of email where possible. On a temporary basis, the FSPO is accepting pdf submissions from complainants and providers, provided that the relevant complainant has confirmed an email address for communication.
In the Digest, the FSPO has confirmed that specific decisions arising out of Covid-19 related complaints will be published in the first half of 2021.
4. The FSPO's general comments on tracker mortgage complaints
In his commentary, the FSPO noted that tracker mortgage complaints continue to comprise a considerable amount of the work carried out by the FSPO office. The FSPO also noted a recurring theme in the digests of decisions published to date, namely that a significant number of tracker mortgage complaints continue not to be upheld.
The main reasons for this trend include "unrealistic expectations" and a "lack of understanding" by complainants of the need for a contractual or other entitlement to a tracker interest rate. The FSPO commented that some complainants appear to believe "that their desire to have a tracker interest rate provides a basis for requiring their bank to grant them one".
The FSPO also drew attention to one unnamed bank, who had maintained an argument that certain customers were not entitled to a tracker mortgage, despite having conceded the opposite during the Tracker Mortgage Examination led by the Central Bank of Ireland (TME). This line of argument arose in the context of complaints relating to the amount of compensation offered by that particular bank under the TME, which the FSPO had noted was "disappointing".
5. The FSPO's summaries of tracker mortgage related decisions
It is important to note that all of the four decisions concerning tracker mortgages involved complainants who had been impacted under the TME. The complainants alleged that the bank had offered them inadequate compensation for its failures under the TME, and 3 such complaints were at least partially upheld by the FSPO. In the 3 decisions, the FSPO determined that the level of compensation did not adequately reflect the hardship and inconvenience suffered by the complainants, and directed the bank in question to pay additional compensation. The additional amount of compensation awarded by the FSPO, on top of the amount already offered by the bank under the TME, ranged from €2,000 to €16,000.
1 of the 4 tracker mortgage related complaints was not upheld
In the tracker mortgage related complaint that was not upheld, the customer's new sole mortgage had been considered by the bank during the TME. The bank identified that an error had occurred on the portion of the new mortgage that had been used to redeem a separate joint mortgage, in that it had failed to offer the customer a tracker interest rate on that portion of the mortgage loan.
In the complaint to the FSPO, the customer stated that the bank's redress and compensation offer under the TME was “wholly inadequate”. The customer submitted that a tracker interest rate should have been applied to the entirety of the loan from the date of drawdown, rather than just the sum used to pay off the joint mortgage.
In his decision, the FSPO found that the customer did not have a contractual entitlement to the application of the particular tracker interest rate which was previously held on the joint mortgage account, on the new sole mortgage loan for which the customer had applied. The FSPO accepted that the additional funds of circa €111,000 on the sole mortgage loan constituted new lending, therefore the bank was entitled to make an offer using its then available interest rates.
Despite rejecting the complaint, the FSPO stated that it was "most disappointing" that the bank did not set out the options for redressing the customer's mortgage account to the customer, or explain the reason that it took the approach that it did in applying redress to the mortgage loan account. The FSPO observed that if the bank had done so, perhaps it would have been more apparent to the customer that there had in fact been a significant benefit to the customer in the approach taken by the bank.
In 1 partially upheld complaint, the FSPO rejected the Complainant's argument that the bank had offered an incorrect tracker interest rate margin
In a decision relating to a partially upheld complaint, the FSPO considered whether the bank had offered the complainants the appropriate tracker interest rate as part of its offer of redress under the TME. The complainants had initially been offered a tracker interest rate on their mortgage loan, comprising of the European Central Bank rate (ECB) plus a margin of 0.75%. However, the loan amount required by the complainants was subsequently increased, and as a result the bank had made an amended offer of a two-year fixed interest rate of 4.99% (which was accepted by the customers).
Prior to the expiry of the two-year fixed rate period, the complainants switched to a variable interest rate of 4.55%. As the bank had failed to inform the complainants that, by breaking from their fixed interest rate period early, they would lose their entitlement to a tracker rate in the future, the complainants were offered redress and compensation. The complainants were also offered the tracker rate that they would have been offered at the maturity of the fixed rate period, being ECB + 3.25%. However, the complainants claimed they were entitled to the tracker rate of ECB + 0.75%, that had originally been offered by the bank prior to the amendment of the loan amount.
Financial service providers will find some comfort in the FSPO's refusal to uphold this specific aspect of the complaint. The FSPO concluded that, as the complainants did not sign or accept the original tracker interest rate offer of ECB + 0.75%, there was no contractual or other obligation on the bank to offer them this rate from the date of maturity of the two-year fixed rate period as part of its offer of redress under the TME.
Having regard to all of the circumstances, the FSPO did not accept that the amount of compensation paid by the bank under the TME was reasonable. The FSPO directed the bank to pay €2,000 in compensation, in addition to the €3,000 that had already been offered to the complainants.
General observations on the tracker mortgage related decisions in the Digest
One theme coming through in reviewing the Digest is the need for financial service providers to adequately communicate with customers, even in circumstances where complaints were not ultimately upheld. Regular perceived failures in communication included the failure to properly outline the provider's position after a complaint is initially made to it by a customer.
Based on the Digest, the FSPO's published tracker mortgage related decisions focused on whether the affected customer had a contractual entitlement to a tracker mortgage, or a particular tracker interest rate margin. This is worth noting in light of a relatively recent High Court decision, unrelated to tracker mortgages, which overturned an insurance related decision of the FSPO partly on the basis that the FSPO had had insufficient regard to the terms of the contract.
Although the FSPO has the ability to uphold complaints even in circumstances where the provider's conduct was not contrary to law, for instance where the conduct is deemed "otherwise improper" by the FSPO, it is clear that the terms of a customer's contract ought to be a paramount consideration in any decision of the FSPO relating to the alleged failure of a provider to fulfil its obligations to a customer.