Clause 59 - Financial services ombudsman scheme to apply to consumer credit licensees
Consumer Credit Bill
5:00 pm
Gerry Sutcliffe (Parliamentary Under-Secretary (Employment Relations and Consumer Affairs), Department of Trade and Industry; Bradford South, Labour)
The clause deals with the financial services ombudsman scheme to apply to consumer credit licensees. Consultation showed that consumer and industry groups strongly support the introduction of an ADR system for consumer credit. In most cases, consumers currently have no other option than to go to the courts to seek redress against unfairness, which often proves daunting and expensive for consumers and industry. Most credit provided by banks and building societies is already covered by ADR, and some trade associations run their own ADR schemes. However, access for consumers to ADR is not universal and businesses can in many cases opt out. ADR will provide wider and easier access for both consumers and industry to an efficient and cheap process of dispute resolution. It means that most consumers no longer have to be worried about going to court to challenge unfairness. It allows disagreements to be settled quickly and simply, and consumers have a better chance of obtaining fair redress against unfair practices. It will encourage fair standards throughout the industry. Ultimately, these changes will increase consumer confidence in the market, which in turn benefits the industry.
The ADR will be provided by the Financial Ombudsman Service. The FOS was chosen as the ADR provider for consumer credit matters because it already deals with the financial services sector generally. Under the Financial Services and Markets Act 2000, the FOS provides ADR for two existing jurisdictions, the voluntary jurisdiction and the compulsory jurisdiction. The clause adds a third—the consumer credit jurisdiction. About 80 per cent. of people who responded to the consultation said they would like the FOS to provide ADR under the Consumer Credit Act 1974.
The FOS's existing experience and expertise will ensure a smooth transition to the new ADR scheme, more so than if another provider were used. Clause 59 describes the conditions that must be satisfied for a complaint to be dealt with by the FOS and also shows how different activities will be made subject to the consumer credit jurisdiction.
The Secretary of State for Trade and Industry will introduce types of credit business into the consumer credit jurisdiction by order. The order will be agreed with Her Majesty's Treasury Ministers. It will set out one or more of the types of business for the new licence categories: consumer credit business, consumer hire business, credit brokerage, debt adjusting, debt counselling, debt collecting, debt administration, credit information services and credit reference agencies. Different types of business will be introduced on a staggered basis.
The rate at which businesses are introduced into the consumer credit jurisdiction will be agreed with the Treasury after consultation with the FOS and the Financial Services Authority. That will ensure that the FOS can cope with the additional work load and will not risk being overloaded.
Once a type of business is introduced, the FOS will make rules setting out the activities that it will consider within that type of business. That will provide maximum symmetry between the existing compulsory jurisdiction, covering banks and building societies, and the new consumer credit jurisdiction, covering other consumer credit firms. Those rules will ensure that a consumer's ability to obtain redress is balanced with the capacity of the FOS to deal with extra work. The FOS will also make procedural rules for the operation of the consumer credit jurisdiction. The FOS must hold a public consultation before making any rules, and rules must be approved by the FSA.
For the FOS to become involved, a consumer must want it to deal with the complaint and must be eligible. A person is eligible if they are the individual or are directly related to the individual through the agreement and they are covered by FOS rules. The credit business must have been holding a standard licence when the complaint occurred, and the complaint must fall under a type of business included in the consumer credit jurisdiction. The complaint must not be able to be dealt with under the existing compulsory jurisdiction of the FOS. That ensures that businesses do not become subject to multiple jurisdictions.
A consumer who wants to complain about a firm can take their complaint to the FOS. On receiving a complaint from a consumer, the FOS will first check that the firm's internal complaints handling procedures have been exhausted. Firms currently have eight weeks to settle complaints before the FOS will become involved. At the end of that period, if the complaint has not been resolved, the firm will be obliged to let the consumer know about the FOS. Then, if all the criteria that I mentioned have been met, the FOS will consider the complaint.
Before opening a case, the FOS will try to settle the complaint informally. If that is unsuccessful, the FOS will open a case to investigate the complaint. Much of the work of the FOS is carried out by correspondence, so that neither consumers nor businesses need appear at a hearing. After considering the case, the FOS will issue an adjudication. That stage of the case may be handled by a member of FOS staff other than the ombudsman. If either party is unhappy with the adjudication, they can request that the ombudsman review that assessment and make a determination.
The FOS makes decisions based on what is fair and reasonable in each case. It takes into account the law, regulations, the regulator's rules, relevant codes and good industry practice. That ensures that, within the legal framework, the FOS can come to a practical common-sense solution that has a better chance of being acceptable to all parties involved. It can order a range of imaginative redress mechanisms from either party to bring things to a just and amicable solution. If the consumer accepts the ombudsman's final decision, it is binding on the business. The FOS decision can be enforced through the courts, and the FOS can inform the OFT of its determinations so that it can take any necessary regulatory action.
The clause is necessary to provide consumers with better and more accessible opportunities for redress against unfair practices. I hope that, with that explanation, the Committee will accept the clause.