Why the EDR schemes need reform

Based on nine years of experience making complaints to the Financial Ombudsman Service Limited (FOS) and the Credit and Investments Ombudsman (CIO), it is clear these schemes need reform. 

A primary reason for reform is that the FOS and CIO place too great a burden on aggrieved consumers to prove they haven’t been treated fairly, while offering no aid to consumers to develop and articulate their complaints before being put to FSP’s for their response and rebuttal if they deem it appropriate. 

Although we understand the concept of “user friendly” EDR schemes, which assume consumers are unrepresented and are therefore largely cost neutral, the hobbling of consumer representation does not work in practice because it creates an inherent resource imbalance: FSP’s are routinely directly represented by articulate advocates with legal training. Unlike banks and insurers, consumers do not have a battery of corporate lawyers on the payroll. 

What a consumer may not understand when engaging an EDR is that the basis of the relationship between the consumer and the EDR is contractual. The terms of the contract are found in the Terms of Reference (TOR’s) of the EDR. Consumers usually enter this contract with no understanding of the TOR’s or their effect, or the relevant case law. Nor do they understand the limited scope for review of a FOS or CIO Determination. Determinations are final (the contract stipulates this) which makes it vital that consumers submit a well-constructed complaint in the first instance. 

For example, over the past decade, the courts have afforded the FOS broad discretion when making decisions, and the process by which these decisions are made is not easily challenged. FOS Decisions are susceptible to judicial review only if there is an error of law. Or the decision was affected by fraud or dishonesty or lack of good faith. Or the decision was not carried out in accordance with the contract between the consumer or member and the EDR. Or if the decision was one to which no reasonable decision-maker could properly arrive at on the evidence. 

The FOS and CIO are not bound by judge-made precedent, so one determination can differ significantly from another. This variance is no basis for challenging a determination however (unless fraud, dishonesty or a lack of good faith is proven, or the high bar of Wednesbury unreasonableness), and it will stand. If these are proven, the court will order the EDR to review the determination but they will not change it unless there are exceptional circumstances. 

The FOS and CIO are incorporated bodies funded by a base and user-pays levy on industry. This model has its own pros and cons; however, I observe that non-government bodies may be perceived as being too closely connected to industry, from whom they recruit many of their staff and board members, and are therefore too susceptible to influence. That risks undermining the presentation of the schemes as independent. Furthermore, the board structure is inconsistent with public perceptions of independent tribunals and courts.  

In conclusion, reform of the FOS and CIO must address the imbalance between the consumers who make complaints and the Financial Services Providers (FSP’s) who defend them. Consumers are encouraged to make complaints to FOS “for free” but are not assisted by FOS in the preparation of their complaint or in understanding the case law. The FSP’s on the other hand are often corporations who have teams of lawyers who understand FOS’s processes and TOR’s, and the applicable case law. Reform should also address the perceived lack of independence of these schemes. 

It is therefore vital that the complaint put to the EDR is well-constructed and argued in the first instance, and following review by the EDR, to achieve the best result for the consumer. 

Given the finality of a FOS or CIO Determination, and the lack of judicial review options available to challenge these decisions, it is imperative that consumers have the assistance of skilled representatives to prepare complaints and argue the merits of the case. 

This article is based in part on the Maurice Blackburn Submission to the review of the financial system External Dispute Resolution framework -