Mass redress occurs when there is significant, widespread detriment in a consumer market. The priority for the Financial Conduct Authority (FCA) and Financial Ombudsman Service (FOS) should be preventing that detriment from occurring and ensuring that redress is handled fairly.
The best way to prevent mass redress is through effective implementation of the Consumer Duty alongside improving the rulebook where required. To be successful, the Consumer Duty must be matched with a more effective approach from the FCA to setting expectations for firms, monitoring real consumer outcomes and acting proactively to prevent detriment and harm.
A key driver of complaints to FOS is unaffordable subprime credit card lending. Issues were known in that market but not addressed. We would like to see the FCA commit to a more proactive approach to identifying consumer detriment and potential redress drivers at an early stage and, crucially, to act where issues are identified. This should include:
- monitoring jointly with FOS and organisations to identify problems likely to lead to redress; and
- taking prompt action to address drivers of detriment before problems become widespread, including using FOS decisions to inform FCA guidance so that the 'early warning' of complaints translates into concrete action by firms.
We recognise the challenges for FOS and firms of low quality bulk complaints made by some complaints management companies (CMCs) but note that rising complaints volume principally reflect real firm misconduct. We are open to proportionate steps to address the problem of low quality volume complaints whilst not reducing consumer access to redress.
Ultimately, earlier and stronger intervention by FCA where problems emerge is the best way of both reduce the impact of FOS fees on firms and protecting consumer interests.
We agree that the FCA could have a role through industry-wide redress schemes and that this can have benefits for consumers as well as firms in wider, speedier access to redress at lower cost. Proposals should, however, not lower standards of consumer protection or reduce redress.
The use of schemes of arrangement agreed with the FCA to reduce the redress liabilities of firms facing financial difficulty represented a poor outcome for the consumers affected, many of whom did not receive redress. The government and FCA should think more about pre-emptively protecting consumer interests where such situations emerge, for example by extending the Financial Services Compensation Scheme to consumer credit.
Finally, consumers in financial difficulty with grounds for complaint are often affected by stress, anxiety and other vulnerabilities like mental health problems that make it more difficult for them to take action and raise concerns. Free to client support for people who need help to complain is not currently widely available. While CMCs can be a good option for many consumers, if FOS and the FCA want to ensure consumers can access redress without some of the risks and downsides of CMCs, it is important to consider what other advice and support must be offered.