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MONEY BOX

Presenter: PAUL LEWIS
TRANSMISSION: 3rd FEBRUARY 2007 12.00-12.30pm RADIO 4

LEWIS: Hello. In today’s programme, the Financial Ombudsman in the dock as a top barrister accuses it of failing Equitable Life policyholders who complained. Bob Howard’s been looking at company pensions this week.
HOWARD: Is it right for firms to offer cash for employees to leave final salary schemes?
CARBERRY: Some employers would be tempted to effectively bribe people out of their pension schemes and that’s very worrying.
LEWIS: Another bank is fined for not giving customers full information when selling them insurance. The government’s challenged to give pensioners council tax discounts. And the worst and the best of savings accounts 3 weeks after the Bank of England raised rates.
But we start with that damning report on the performance of the Financial Ombudsman Service. The Ombudsman’s there to arbitrate when a customer complaint about a financial services company can’t be resolved, but this week Lord Neill, an eminent barrister, former Chairman of the Committee on Standards in Public Life, investigated the way the Financial Ombudsman treated complaints by some policyholders of Equitable Life, and he told the European Parliament this week that it “fell short of the standards they were entitled to expect”. Well with me is Paul Braithwaite of the Equitable Life Members Action Group, which commissioned Lord Neill’s report. Paul Braithwaite, briefly, you’ve seen this report now. What are your main concerns about the Financial Ombudsman?
BRAITHWAITE: Well this came about in 2005 when my group EMAG with thousands of members and indeed all of the action groups in Equitable Life seemed to be getting a great many complaints from people who’d invested, subsequently complained that they hadn’t been well treated. So EMAG decided to commission an impeccable academic and we recruited Lord Neill, who is one of the most highly respected academics in the country. This is the man who told Tony Blair to give back £1 million to Bernie Ecclestone.
LEWIS: Sure, but come on to your concerns because you know we’ve got to get other sides in.
BRAITHWAITE: Well the report took over 6 months. It started with Lord Neill in August last year. He did it entirely independently and he looked in depth at 30 plus cases. He dealt with the complainants; he read the entire paper trail. Of course you know the FOS works only in paper.
LEWIS: Sure, but what were the main findings? What are your concerns?
BRAITHWAITE: The findings were that the FOS fell far short of the standards that the complainants were entitled to expect of an ombudsman: the playing field was not level - it pitted the layman against Equitable’s formidable barristers; that the Financial Ombudsman Service acted not even-handedly but as the defence council for Equitable; that the FSA had prevailed over the FOS’s judgement and compromised the claimed independence.
LEWIS: Well that’s a long list of serious charges, but just briefly it was a small sample – 30 people who’d been turned down. Inevitably, they wouldn’t be happy.
BRAITHWAITE: Well they weren’t turned down. That’s a misnomer. These are people who had been writing to and from the FOS. And many of them, the claims have been accepted. The problem has been in the way that the money compensation has been arrived at – usually with no actual explanation and no back up from the FOS to compel the society to explain their offers.
LEWIS: Right, let me put those points to David Cresswell. He’s a spokesman for the Financial Ombudsman Service. People come to you, David, when they’ve reached the end of their tether in a sense. They want you to deal with it fairly, but in this case very strong criticism by Lord Neill on the way you handled these complaints.
CRESSWELL: Yes, ombudsmen are very aware that if they’re not able to tell a consumer with a complaint what that consumer badly wants to hear, then the consumer’s likely to feel frustrated and aggrieved.
LEWIS: But it wasn’t that. It was the process. It was the way they were dealt with; not the actual outcome.
CRESSWELL: Well obviously we have experience of dealing with thousands of complaints every year, involving the most distressing circumstances – death, sickness, bankruptcy – and being independent and impartial means we have to be professionally detached in dealing with those complaints.
LEWIS: But the very accusation from Lord Neill on behalf of these complainants was that you were not impartial; that the scales of justice were “not held evenly”. This was the phrase he used.
CRESSWELL: Right. Well that was in relation to a decision we made 2 years ago; and if genuinely the concerns were so great, we are surprised that we weren’t then challenged in law at the time rather than 2 years later asking a lawyer to write a report of people’s experience.
LEWIS: But you know one reason could be that it’s very expensive to challenge your decisions in court. It’s very difficult. Even the financial services industry has very seldom done that.
CRESSWELL: Well we are frequently challenged and we know that in this particular case a number of action groups, including (I understand) Paul’s action group, did actually begin the process of launching a judicial review with one of the best human rights lawyers in the country.
LEWIS: Paul, why didn’t you pursue that? If you think this was so badly handled, you could have gone to court and got it overturned.
BRAITHWAITE: Indeed, we did explore a judicial review and we were advised by our excellent lawyers that since there were five grounds given for not processing what are called Penrose related complaints …
LEWIS: This is after the report by Lord Penrose in March 2004, but we won’t go into the details.
BRAITHWAITE: Yes. And the decision by the chief ombudsman at the Financial Ombudsman Service, Walter Merrick, surprised everybody by unilaterally one year later saying, “I’ve decided to use my discretion not to move forward”. The correspondence we got from the FOS was to say that only one of the 50 complainants who had got in under the wire could proceed with the judicial review; that if any one of the five grounds was upheld by the court, then not only would the FOS pursue the individual but also the Equitable who would be joined in the action. So the threat to the 50 individuals of going forward in cost terms was absolutely inconceivable, which is why we commissioned this academic study.
LEWIS: But Lord Neill did say of that decision, although he said claimants didn’t have a fair opportunity to address it, he did say the decision itself was impregnable. Even he doesn’t think you’d have won. But let me put to David Cresswell, what are you going to do as a result of this David? You’re obviously defending yourself against these charges, but are you just going to brush it aside or are you going to take any action to make people believe that you are fair and impartial when dealing with all the other cases that you get?
CRESSWELL: Well I think there are two points there.
LEWIS: Briefly if you would.
CRESSWELL: Yeah. Don’t forget we’ve actually got compensation for several thousand Equitable customers who otherwise wouldn’t have got compensation and, secondly, we haven’t even actually seen this report yet. The action group hasn’t sent it to us.
LEWIS: Okay, David Cresswell, thanks very much, and also thanks to Paul Braithwaite of Equitable Members Action Group. And you can read the whole of Lord Neill’s report through a link on our website.