Consumer Loss of Confidence: Reforming the UK's Financial Ombudsman Service

The UK's Financial Ombudsman Service (FOS) was created to give consumers a free, fair, and easy way to solve their financial disputes without the expense and risk of litigation. It is generally considered an important part of the UK's financial justice system. But in practice, it is a body that is now being increasingly criticized for being unclear, unaccountable, and, in many cases, unfair. This article analyses and presents its current crisis of consumer confidence and suggests reforms.

A Crisis of Consumer Confidence

Many people who contact the FOS to solve a problem end up disappointed. The process was supposed to protect consumers, but often it feels more like it's hurting them.

Numerous complainants appear to have a common experience: complex issues reduced to standardised summaries; responses framed in inflexible language; decisions delivered without adequate explanation. Generally, a significant portion of FOS users feel their complaints were not only dismissed but significantly misunderstood.

The Problem of Irrevocable Decisions

While many ombudsmen appear to perform their duties diligently, a salient feature of their decisions is a mechanical application of policy rather than a careful balancing of legal and factual merits. Furthermore, once a final decision is given, there is no internal appeal. If the complainant rejects it, the FOS simply closes the case and the decision is left published and unamended, even if later disproven elsewhere, say in a court of law.

This lack of accountability brings the FOS into disrepute and erodes confidence, especially when flawed determinations remain in the public domain. While many ombudsmen appear to perform their duties diligently, a key feature of their decisions is a mechanical application of policy rather than a careful balancing of legal and factual merits. Also, once a final decision is made, there is no way to appeal it internally. If the person who complained rejects the decision, the FOS simply closes the case. The decision is left published and unamended, even if it is later disproven elsewhere, such as in a court of law.

This lack of accountability makes the FOS look bad and makes people lose trust in it, especially when mistakes made in decisions stay out in the public.

Misleading Publication of Anonymized Decisions

The FOS's policy of publishing anonymized decisions online as part of its commitment to transparency is somewhat insincere as when a published decision is later contradicted by new facts, legal proceedings, or even settlements, the anonymized publication remains unchanged, giving the public a misleading impression of the ombudsman's efficiency.

Furthermore, there is no formal process to review or update the information, and the ombudsman's final decision is treated as permanent, even when it no longer reflects the true outcome of the dispute. This misleads consumers and hurts people's trust in the financial redress system. The ombudsman doesn't correct public decisions, even when there have been material changes. This isn't just an oversight; it shows that the ombudsman is being dishonest, stubborn, and arrogant.

Opaque Reasoning and Perceived Bias

For many years, critics of the FOS have said that there is a lack of transparency in decision-making. Ombudsmen often refer to general policies, "industry standards," or internal guidance instead of specific legal principles. This makes it hard for regular people and even lawyers to understand.

Some ombudsmen also seem to talk down to people or act like they know more than them, even when the situation is complicated. Consumers have said that ombudsmen make decisions that seem to assume guilt, suggest bad faith, or misinterpret the basis of the complaint. This can leave consumers feeling unheard and accused and makes people think that the ombudsman is biased and not being fair.

Limited Redress and Oversight

When a consumer disagrees with a decision, their only formal recourse is to reject it. There is no way to appeal within the FOS, get a second opinion, or force accountability. Judicial review is rarely a good option because it's expensive, complicated, and limited.

In addition, when a complaint is made against an ombudsman, it is usually reviewed by a manager or another ombudsman. This is often done without looking closely at the original decision. As a result, it creates a system where the decisions cannot be challenged.

Also, the FOS is largely protected from criticism. The FOS is funded by the very firms it regulates, so its independence is questionable. This is particularly true when decisions seem to favor institutions over individuals in difficult situations.

Public criticism and political concern

The FOS's problems are not new. In recent years, it has been criticized by Parliament, the National Audit Office, and consumer rights groups. Some of the concerns include poor investigations, untrained staff, arrogance, and irrational and illegally unsound reasoning.

In 2018, a well-known Channel 4 investigation showed that former caseworkers said they made up their own rules "winged it" for complex cases. The FOS promised to make changes, but many of the underlying problems that are making people lose trust in it are still there.

The FOS needs to make some big changes to fix this. Consumers count on the FOS to help them, but if the FOS doesn't make good decisions and people can't challenge those decisions, it's not good for anyone.

Three Key Reforms Are Urgently Needed

To fix this, we need to make three big changes. The following proposals aim to improve fairness, accountability, and transparency:

1. Introduce a Post-Decision Review Mechanism

The FOS must adopt a formal process to change decisions where new legal information, evidence, or errors of fact come to light. This process could be similar to the review processes used in tribunals, which would help maintain public trust in the system.

2. Raise Standards of Reasoning and Transparency

Final decisions should be clear, based on legal principles, and refer to evidence and relevant industry rules. Templates should not replace a real look at the facts of a case.

3. Improve Independent Oversight

We should create a separate ombudsman advisory or appeals panel. This panel could be external to the FOS. It would review consumer complaints about process failures, factual errors, or potential or actual bias.

Conclusion: Safeguarding Justice

The Financial Ombudsman Service is a very important part of the UK's consumer protection scenario. It is an accessible and affordable alternative to litigation. But access is meaningless without fairness, and fairness cannot happen without accountability.

For many consumers, the FOS is the only realistic way to solve problems, which makes its mission very important. If it doesn't do its job well, it can cause a lot of harm. As legal professionals, policymakers, and citizens, we must demand a service that is both efficient and just. It is time to address the issues within the FOS and reform it before confidence in the system is permanently damaged.

ABOUT THE AUTHOR: Dr Andre Alexander, LLB, SJD, Barrister, Solicitor. Dr Andre Alexander is Managing Partner of ABS&P International Law Firm. He writes in his personal capacity as a citizen of the UK. With over 15 years of international legal practice, he has over 4 bar admissions and specialises in consumer justice, regulatory accountability, and cross-border disputes. He has advised governments, multinational corporations, and individuals on complex legal matters across jurisdictions. Dr Alexander trained as an English barrister and is foreign-qualified barrister & solicitor with practice rights in England & Wales.

Copyright ABS&P International Law Firm

Disclaimer: Every effort has been made to ensure the accuracy of this publication at the time it was written. It is not intended to provide legal advice or suggest a guaranteed outcome as individual situations will differ and the law may have changed since publication. Readers considering legal action should consult with an experienced lawyer to understand current laws and.how they may affect a case. For specific technical or legal advice on the information provided and related topics, please contact the author.