Press Release - 18 January 2006

Statement by the Financial Services Ombudsman, Joe Meade, to the Joint Oireachtas Committee on Finance and the Public Service on 18 January 2006.

Background
I am pleased to have this opportunity to address this Committee on the matter of endowment mortgages complaints. This being my first appearance before this Committee, I will give a general outline as to my overall role as Financial Services Ombudsman in the financial services sector before I go into this specific matter.

The position of the Financial Services Ombudsman was established on a statutory basis on 1 April 2005. It is completely separate from and independent of the Financial Regulator, it has a completely different role and is funded by levies from the financial service sector not by the Regulator. Of course there is a good and proper working relationship with the Regulator and I will outline that relationship later.

The existing voluntary ombudsman schemes for the credit institutions and insurance industry were subsumed into my role from 1 April 2005 but the remit was expanded significantly from their roles. As Financial Services Ombudsman I investigate, in an impartial and independent manner, complaints from individual customers and small businesses who have unresolved complaints from financial service providers who are either regulated by the Financial Regulator or are subject to the terms of the Consumer Credit Act 1995.

My remit now covers complaints against
• Banks
• Building Societies
• Insurance Companies
• Credit Unions
• Mortgage, insurance and other credit intermediaries
• Stockbrokers
• Pawnbrokers
• Money-lenders
• Bureau de Change
• Hire purchase providers
• Leasing companies
• Credit sales companies
• Health insurance companies

It is important to note that a complainant must have availed of the internal complaints procedure of the providers before they come to me.

I can award compensation up to €250,000 where a complaint is upheld. Unlike the former voluntary ombudsman schemes for the credit institutions and insurance industry my decisions as Ombudsman are binding on both parties subject only to an appeal by either the complainant or the financial service provider to the High Court. My role is therefore a quasi judicial one and whether a complaint can be upheld will be determined on the basis of evidence furnished, examined and reviewed.

Since April 2005 a total of 2600 complaints were received by my office which was 23% of an increase for the same period in 2004 including new complaints against intermediaries, credit unions and stockbrokers as these were not subject to the former voluntary ombudsman schemes. In general I have found in favour of half of the complainants where investigations were undertaken and this underlines the fact that as Ombudsman I am an impartial arbiter of disputes.

There is close cooperation between me, the Financial Regulator and the Pensions Ombudsman. I want to ensure that complaints that are proper to my area are referred to me and naturally when investigating a complaint if a matter comes up that I feel is indicative of some kind of pattern I will inform the Regulator so that appropriate regulatory action may be taken. I have already done this on six occasions during 2005. However, I would like to emphasise that the Financial Services Ombudsman is essentially an arbiter in disputes between customers and institutions and is not a Regulator. I also cooperate with the Pensions Ombudsman so as to avoid unnecessary overlap in the pension’s area. The three organisations are all working very well together to achieve the same end for consumers and providers and a memorandum of understanding is being drawn up between us for exchange of data and proper liaison.

Finally I am also part of the EEA Memorandum of Understanding on a cross border Out of Court Complaints Network for Financial Services in the EEA and this facilitates resolution of disputes within the EEA area.

I will now address the issue of endowment mortgages complaints.
Endowment Mortgages complaints

As Financial Services Ombudsman, as did the former voluntary ombudsman schemes, I do investigate complaints involving endowment mortgages. Each case is dealt with on its own individual merits. In so investigating where it has been clearly demonstrated that

• Mis-selling has arisen
• It was clearly indicated that a guaranteed amount to repay the mortgage in full or that a surplus would arise was given at the time the policy was sold
• The examination of the documentation furnished by the complainant and the financial service provider upholds the complaint
• The complaint was made within a statutory time limit

an appropriate remedy or compensation is made.

In general to date complaints fall into two categories

• Mis-selling at the date of sale
• Shortfall in the final or projected outcome.

Investigation of complaints by the Ombudsman

The Ombudsman’s consideration of complaints takes account of the following matters and two issues arise.

(a) Individual Policies held to Maturity

The Financial Services Ombudsman will consider complaints from consumers arising from the provision of endowment mortgages which are held to maturity. If the complaint is that the product was mis-sold at a date which is more than 6 years before the complaint is made, then the complaint falls outside the Ombudsman’s statutory remit [57BX(3)(b) of the 2004 Act].

However, if the complaint is that on the maturity of the policy the Provider failed, neglected or refused to pay out monies in accordance with the contractual promises, then the allegation against the Provider is one of breach of contract on the maturity of the policy. In this situation, provided the complaint is made within 6 years of the maturity of the policy, the Financial Services Ombudsman will investigate, make a ruling and direct an appropriate remedy by way of compensation or otherwise.

(b) Individual Policies Surrendered or Sold in Advance of Maturity

Where individual policies have been surrendered or sold by the consumer in advance of maturity, no final shortfall has crystallised and therefore a complaint to the Ombudsman of failure to pay out in breach of contract may be difficult to sustain. In these circumstances of early surrender or sale, the Financial Services Ombudsman will consider complaints of maladministration which have been alleged to have taken place within the 6 years prior to the complaint being made, but the Ombudsman cannot investigate or rule on what might have happened had the policy run its full course.

Investigations to date

Some 280 complaints have been received up to end 2005 by me - the Financial Services Ombudsman -and the former voluntary ombudsman schemes. In relation to endowment cases investigated by me to date, and by the voluntary ombudsman schemes which preceded the establishment of the office, the cases upheld were upheld on the grounds of maladministration and not on the grounds of mis-selling.