FSA - mortgage endowment complaints

Financial Sevices Authority has approved proposals to give mortgage endowment policyholders more time to complain if they believe their policy was mis-sold

The Journal, February 2003, page 11

The FSA has approved proposals to give mortgage endowment policy holders more time to complain. The Financial Ombudsman Service (FOS) is not normally able to consider complaints that are referred to it more than three years after a complainant first became aware that they had suffered a loss (the so called “time bar” rule). For endowments, this could be considered to be the date on which the policy holder has received the first re-projection letter from the policy provider. Some policy holders had received their first letters in early 2000, meaning that the time bar could take effect for them early this year.

The FSA following discussions with various product providers over the course of last year, has proposed changes to clarify the position for consumers are follows:

1. A red (and not an amber or green) re-projection letter is to be regarded as notice of the potential for loss. This is needed for the time bar to start running; and

2. Consumers will not be held “out of time” until six months after a second red letter is sent, if this gives the consumer more that three years after the first red letter, to avoid the risk that a single red letter could cause someone to be held out of time.

The FOS has also published a “set process” which should be followed by FSA regulated firms in handling mortgage endowment complaints. The set process is as follows:

1. The firm has to establish the exact basis of the complaint e.g. funds not matching a client’s risk profile etc.

2. Gather information. The FOS has questionnaires and templates for this process.

3. Judge the complaint i.e. was it compliant. The FOS has produced decision trees to help with this assessment.

4. If compliant, reject complaint. If not compliant, progress to redress calculation.

A great deal of information on the FOS set process is available on their website www.financialombudsman.org.uk – click on publications and technical briefing notes and mortgage endowment assessment guide.

It is also noted that:

1. More than 50% of the 10 million endowment policies now in force are not projected to deliver the sum required to pay off the target sum at maturity. This is due to falling stock market returns.
2. Consumer groups have requested the FSA to launch a full scale review of all endowment sales along the lines of the pensions mis-selling review. The FSA has declined to undertake such a review.
3. The FSA have adopted a three-pronged strategy to endowment mortgage mis-selling which is:

a. Ensure that all investors are given an up-to-date view of how their policy is performing to enable them to make timely decisions on what action they need to take to avoid a shock at the end of the policy term.

b. Ensure that endowment policy holders are aware that they may complain to the firm that sold them the policy if they were mis-sold and subsequently to the relevant ombudsman.

c. To pursue particular “pockets” of mis-selling where there is evidence that firms systematically misled investors, gave wrong projections of returns and charges or are not handling complaints fairly or thoroughly.