Continuous payment authority: we are being failed by the Financial Ombudsman
The Financial Ombudsman Service has been ruling on the side of banks that have refused to cancel your monthly subscriptions - even though banks are legally obliged to do so.
You might have read recently how customers have been given unnecessary grief from banks when they've tried to cancel recurring debit or credit card payments.
The Financial Services Authority, the Office of Fair Trading, many banks and most money websites have not been giving entirely clear or accurate information about cancelling these so-called “continuous payment authorities” (CPAs).
CPAs are often used for magazine, DVD or other monthly subscriptions. They're like direct debits, except that the retailer takes the payment through your debit or credit card number rather than through your bank account and sort code.
Unlike direct debits, banks have been resisting when customers have asked them to stop a CPA.
Legislation was introduced in 2009, the Payment Services Regulations, which requires banks to stop these payments on your request, even if you haven't already approached the retailer to do so.
However, banks have not been obeying this law. What's more, the Financial Ombudsman Service has also been ruling that banks don't necessarily have to cancel CPAs.
The Financial Ombudsman Service
First, it's worth revisiting just what the Financial Ombudsman Service is.
The FOS is a free, additional layer of protection for customers, over-and-above your right to take a business to court.
The FOS can look into your complaints against banks, insurers and almost any other financial services business. If it decides someone has been treated unfairly, it orders the business to reimburse its customer, and add compensation for inconvenience if appropriate.
If the FOS rules against the customer, the customer doesn't have to accept the decision and can still take the financial services company to court.
Read How to complain to your bank and win for more.
Financial Ombudsman late in understanding CPAs
I spoke to Phillipa Cook at the FOS. She didn't admit that it had misunderstood the law along with everyone else, but instead pointed out that the way the law is written is very “opaque”. She couldn't pinpoint for me when the FOS worked out that banks must stop CPAs at a customer's request. Cook also pointed out that the regulator itself has only just clarified the law.
A 2009 issue of the FOS's newsletter, Ombudsman News, made no reference to the new law, while stating:
“Unlike a direct debit, however, a continuous payment authority is not covered by any bank guarantee and can only be cancelled by the business that holds the authority. Consumers often find this surprising.”
Cook's right that the law is unclear, so I don't think we can make villains of anyone who missed it – probably not even the banks on this occasion. You can take a look at the Payment Services Regulations for yourself.
Financial Ombudsman doesn't stick to the law
Cook also pointed out that the FOS rules on fairness as opposed to points of law, which means it won't automatically decide that your bank should cancel your CPA.
The FOS is the consumer's alternative to the legal system. It takes the law into account, but above that, adjudicators and ombudsmen at the FOS have to consider what they believe is fair for each party under the specific circumstances.
As a result, it did not always support banks before the Payment Services Regulations took effect, nor has it always supported customers since the new law took effect. In one example Cook recounted, the FOS took the view that the customer under the circumstances should have tried to cancel the CPA with the business first, rather than the bank.
A contentious but essential service
My conversation with Cook really rammed home how much the FOS takes its own view of what is fair rather than merely following the law. Lord Hunt in his review of the FOS in 2008 was encouraged by the fact the it gave a service to consumers that was very different to the courts.
Yet this is a contentious point. Banks may rue the FOS's power, yet some customers whose claims are rejected also have grounds to complain about an unsatisfying lack of consistency or poor judgement.
However, I dread to think what devastation financial services providers could cause if the FOS was not around.
The FOS receives millions of complaints a year, or 12 a second, and it's currently upholding three-quarters of complaints, up from half, largely thanks to huge numbers of successful PPI claims. The FOS takes this pressure off the court system and gives customers an easier way to face down the all-mighty banks.
If your CPA claim has been rejected by the FOS
The FOS gets many complaints related to these kinds of recurring payments.
If an adjudicator at the FOS has ruled against you in recent months, you could try to approach it again and ask for your complaint to be pushed up the chain to one of the hundred or so ombudsmen, who will make a final decision. Take the opportunity to remind them that the bank is legally obliged to cancel a CPA, in case your adjudicator wasn't aware at the time.
If your complaint is older, or you have already had a final decision from an ombudsmen, you could have real difficulty overturning the decision. The FOS is not obliged to re-visit its rulings even if new evidence turns up, and anecdotal evidence reveals its reluctance to do so.
That said, if it believes some decisions haven't properly considered the law, it could choose to be more flexible. Be persistent, polite and concise.
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