Guidance

The ADR directive: Guidance for CMCs handling financial complaints

Published 4 February 2016

The Alternative Dispute Resolution directive (ADR) is a new piece of European law. It means that from 9 July 2015 alternative ways of resolving contractual disputes between consumers and businesses will be available much more widely across the UK and the EU. It changed the grounds on which the Financial Ombudsman Service (the ombudsman) can look into a complaint if a claims manager (or consumer) has been late in sending it to them. The time limits themselves haven’t changed, but if you send a complaint late then unless there are exceptional circumstances the ombudsman now needs to have the financial services providers‘ consent to look into a case. Previously the ombudsman could go ahead unless the financial services provider objected.

1. How does a financial services provider give its consent?

A financial services provider should say in its final response letter whether or not it will consent to the ombudsman looking into a complaint if you send it to them late. If it gives its consent, it can’t usually change its mind later.

2. Time limits

The time limits are set out in full in section 2 of the dispute sections (DISP 2) of the Financial Conduct Authority’s (FCA) handbook. The handbook is the definitive guide, but in summary, you are unlikely to encounter any time limits if you always get your complaints to the ombudsman:

• within six months of the financial services provider sending you its final response letter (the “six month rule”).

And

• within six years of the event you are complaining about; or (if longer) within three years of the date on which the complainant became aware (or ought reasonably to have become aware) of the cause of the complaint; (the “six and three” rule).

If you fail to meet these time limits, the financial services provider may be able to withhold its consent. What to do when a financial services provider withholds consent

If a financial services provider has said it won’t give its consent, please look at its reasons first. If they are right, there is little point in you trying to take the case to the ombudsman. However you are within your rights to challenge them if you think they have made a mistake. When you do this, you should tell the ombudsman clearly why you think the business is wrong.

If you are within the limits of the six month rule, there is unlikely to be a problem with that. But if a financial services provider has said it thinks you have broken the “six and three” rule and hasn’t given consent, you’ll need to consider what it has said. You should only go further if you think:

• the event complained about was less than 6 years ago

or

• the consumer only became aware of the cause of complaint within the last three years and there were no reasonable grounds by which the consumer ought to have been aware of the cause before this. Remember the rules are about when the consumer became aware (or ought to have become aware) not when a claims manager became aware.

To use an example from packaged bank accounts:

• Mrs G took out an account in 2004
• the account provided car breakdown cover and Mrs G used this cover in 2011
• in 2015 you complained to Mrs G’s bank that it hadn’t told her about the account and she never knew she had it.
• the bank has said on its final response letter that you have broken the “six and three” rule and has withheld its consent for the ombudsman to look into the complaint.

As Mrs G opened the account over six years ago, and used the account more than three years ago (so presumably knew she had it) it looks like the bank is within its rights to withhold consent. Therefore you would need a really clear reason to persuade the ombudsman otherwise.

3. Exceptional circumstances

If you send a complaint in late and a business decides not to give its consent, the ombudsman can still look into the complaint if it thinks the delay was due to exceptional circumstances.

Obviously, exceptional circumstances don’t occur very often. The FCA cites “incapacitation” (of a consumer) as an example in its handbook. If you think you have a case which is late for similarly exceptional reasons, then the ombudsman will consider what you have to say; but is unlikely to think that events such as busy periods in your office, staff shortages or teething problems with a new IT system are exceptional.