Ombudsman Compensation or Penalty - Please help

Martyn1981

I've just been on the phone with the Ombudsman Service following a complaint I submitted on my father's behalf in January 2009.

The ombudsman agrees with my father and has suggested he is compensated by PAYING money?

Too long and boring to explain whole story, so in brief.

In April 08 Barcalys Capital brochure offered an investment with an annual return of 7.75% for 5 years.

Penalty if Dow Jones Stoxx 50 dropped 40% or more during investement.

Brochure had the wrong graph in it (FTSE100 not DJ Stoxx 50) which mislead my father, and ombudsman agreed with this.

Suggestion from Ombudsman, that he write to Barclays asking them to compensate my father by:-

Returning his original investment, less the two annual payments (one received, one on it's way late May) but adding on base rate plus 1%.

Basically Barclays gets 12.5% for being found wrong, my father returns 2 * 7.75% (15.5%) and receives 2 * 1.5% (3%)

In summary he has asked me to discuss with my father a compensation offer that costs him 12%.

Alternatively he has suggested that since my father would lose out if he did that, he could just stick with the policy and see how the markets are in 3 years time and risk any penalty.

So he has found in favour of my father, and suggests losing money now or leaving everything as it is.

I pointed out that a compensatory calculator of base plus 1% is no longer compensation, but is now punitive, and asked if the figure will be reviewed, but this is above him and he couldn't help.

Has anyone ever heard of this before, presumambly this was a perfectly fair way of calculating compensation when base rate correlated with savings and loan rates, but now it is punitive - I can't stress this enough - the compensation calculator the Ombudsman is using is now puinitive. Does Martin know?

Any thoughts?

PS I also claimed for phone calls and lost time, about £100 in calls and 100 hours of time. The ombudsman agreed that a huge amount of time and calls had been spent due to Barclays (not our fault) but said he couldn't compensate for that, so any compensation for distress etc will leave us out of pocket and 100 hours down - is that correct?

dunstonh

Basically Barclays gets 12.5% for being found wrong, my father returns 2 * 7.75% (15.5%) and receives 2 * 1.5% (3%)

I dont get how you have worked that out. The complaint has been upheld that the product should not have been sold and that means putting him back in the position he would have been prior to taking it out. By voiding the policy Barclays will only receive the value of the underlying investments (which you say are lower) so they will be out of pocket. Your father gets his capital returned, with no loss plus interest.

Alternatively he has suggested that since my father would lose out if he did that, he could just stick with the policy and see how the markets are in 3 years time and risk any penalty.

Which seems reasonable. At the moment, there is no financial loss. There is only a financial loss (potentially) on maturity. To be honest, that is when the complaint should have been made. By doing it now there is really the only options of keeping it until the end and take a chance or void the policy as if it never existed.

PS I also claimed for phone calls and lost time, about £100 in calls and 100 hours of time. The ombudsman agreed that a huge amount of time and calls had been spent due to Barclays (not our fault) but said he couldn't compensate for that, so any compensation for distress etc will leave us out of pocket and 100 hours down - is that correct?

Normally, there is a goodwill gesture added to cover things like this.

At the moment, from what you describe, it doesnt appear that the FOS have formally upheld the complaint. It appears they are in the reconciliation stage where options are considered.

Martyn1981

How did I calculate 12.5%?

Well two years in my father should have capital plus two interest payments of 7.75%, so a total of 115.5%.

Due to the brochure error (denied by Barclays who submitted a different brochure to the Ombudsman, but he then countered with our original copy) the Ombudsman does not think my father should have any capital risk, and that Barclays should make things right by returning his capital less any interest received but plus a compensatory amount of base plus 1%.

So Barclays give my father a grand total after two years of 103%, not 115.5% a net difference of 12.5%.

In reality they would have to pay him 100% - 15.5% + 3% = 87.5%

The compensation calculator seems to have broken.

dunstonh

The problem is that by making the complaint that the product should not have been sold you are asking for the contract to be voided as if it was never taken out. That is what you are getting.

In reality they would have to pay him 100% - 15.5% + 3% = 87.5%

Barclays are going to suffer a loss on the voided investment though. Although it doesnt matter if they lose money or profit from it. If the contract is voided, then the cost (or not) to Barclays is irrelevant.

Where was the money held before the investment was made? You could check the interest rate that was paid on that account (assuming its savings) and compare the redress payment to that. They have been known to increase the interest award to match the rate paid where it would have been if not done.

Reaper

Maybe it is because we don't have the full story but it sounds to me like a reasonable offer on the back of a weak claim.

From what you have said the sole basis of the claim is that the wrong chart was printed and that affected whether he would have taken out the policy in the first place. However the FTSE 100 also fell more than 40% over the period (6304 on 16 May 2008, 3530 on 6th March 2008) so regardless of which chart the scheme was based on he would have lost out.

They are offering to give him all his money back and more, and your claiming that means he is paying them money is pushing it to say the least.

dunstonh

For reference, I just looked up an FOS complaint in their publications about not matching investment risk and this bit from the ombudsman may interest you (actual ombudsman, not adjudicator). I have bolded the bit that typically gets applied on complaints like this. Also there is a bit on the interest rate that can be used.

116. My power to award redress is provided for by statute in section 229(2) of FSMA.
Section 229(2)(a) provides me with a wide discretion to make an award “….of such amount
as the ombudsman considers fair compensation for loss or damage…”. I have had regard to
the firm’s legal opinion as to what this section means and its implications for how I should
operate. My decision on the merits of the case is made on a fair and reasonable basis,
taking into account, among other things, the relevant law (DISP 3.8.1R). Similarly, in
considering issues of redress, it is fair and reasonable to have regard to the relevant legal
principles and other relevant factors in deciding what I consider to be fair compensation in all
the circumstances of the case. But I am not limited by section 229(2) (a) to awarding what
would be awarded at law. Rather, it is an award of what I consider to represent fair
compensation, subject to the limits of reasonableness. This means that where I find that a
consumer was misadvised, I will usually aim to place him, as nearly as possible, in the
position that he would have been in had he been properly advised, subject to fairness and
the overall statutory objectives of FOS. Balanced against that I recognise that it would not
normally be fair to pay compensation for loss which is too remote from the firm’s acts or
omissions.

----
150. I have a discretion to award interest by virtue of section 229(8)(a) of FSMA.
However, the section does not specify the method by which interest should be calculated. I
have carefully considered whether interest under section 229(8)(a) should be calculated on a
simple or compound basis. I have noted the position of the Courts on this issue. Section
35A of the Supreme Court Act makes specific provision for the payment of interest on
awards of damages. It provides the Courts with a number of discretions - including the rate
which may be used and the period for which interest should be payable. However, stipulates that interest should be calculated on a simple basis. Thus, interest on damages
(as opposed to interest as damage) should be calculated on a simple basis. I have adopted
this approach to the calculation of interest on the post-crystallisation award.

152. In the absence of such clear evidence, I look to the approach of the Courts to this
issue. There is no completely clear and consistent approach. There are different rates
applicable in different circumstances. The rate applicable under the Judgments Act 1838 as
interest on Court judgments after judgment is currently 8% simple and has not changed
since 1993. This rate is sometimes used to calculate interest on post-crystallisation
damage, but perhaps more commonly now, certainly in the Commercial Courts, base rate
plus 1% is used (as a simple rate). The rationale appears to be that this is intended to
represent a commercial borrowing rate. However, the borrowing rates available to
consumers are typically higher than for commercial customers. And the tax treatment is
likely to differ – with a consumer, unlike a commercial customer, being unable to treat
interest paid on borrowing as an allowable expense for tax purposes.

Martyn1981

Reaper wrote: »

Maybe it is because we don't have the full story but it sounds to me like a reasonable offer on the back of a weak claim.

From what you have said the sole basis of the claim is that the wrong chart was printed and that affected whether he would have taken out the policy in the first place. However the FTSE 100 also fell more than 40% over the period (6304 on 16 May 2008, 3530 on 6th March 2008) so regardless of which chart the scheme was based on he would have lost out.

They are offering to give him all his money back and more, and your claiming that means he is paying them money is pushing it to say the least.

Reaper - It's such a long story that I couldn't include everything.

The graph being wrong mislead my father as to the position of the DJ Stoxx 50, difficult to explain in less than 3 pages, but the Ombudsman agreed. It wasn't that all graphs dropped, it appeared that the index had suffered a big hit already and couldn't therefore drop another 40%.

Had he not been mislead he wouldn't have invested.

Regarding losing money, this might explain it more easily.

Anyone could have earned more than 1.5% interest over the last two years, by replacing the annual payments with 1.5% my father ends up getting less than he would have.

The point of the compensation calculation is to make up for lost years (2 in this case if the ombudsman returns my father to 2008 and 100% capital) with a compensation amounting to slightly more than base.

However, due to the strange situation we are now in, base plus 1% is no longer a reasonable or should that be quite good rate. it is now less than any competent saver could get on an instant access account let alone on a five year lock in.

It no longer compensates by giving a succesfull complainant a reasonable return on their money. Instead it is now punitive as in this case it would cost Barclays far less than the going rate for an inteligent term deposit.

Hence my upset.

dunstonh

However, due to the strange situation we are now in, base plus 1% is no longer a reasonable or should that be quite good rate. it is now less than any competent saver could get on an instant access account let alone on a five year lock in.

Has your father a history of using 5 year fixed term deposits? If he has then you present that to the adjudicator as evidence that he would have used one for this money. If he hasnt then there is no basis for making that argument. You cant retrospectively look back and say what was best and that he would have been in that. You look at what he was in previously and use that. Equally, has he a history of using internet savers and changing his account to chase the rates? If yes, present that evidence.

turbobob

Martyn1981 wrote: »

The graph being wrong mislead my father as to the position of the DJ Stoxx 50, difficult to explain in less than 3 pages, but the Ombudsman agreed. It wasn't that all graphs dropped, it appeared that the index had suffered a big hit already and couldn't therefore drop another 40%.

As Reaper said the FTSE fell more than 40% over the period as did the DJ Stoxx Europe 50. Both indices had already dropped by April 2008. So really it's not the most convincing argument. But the Ombudsman (I'm assuming this is an Ombudsman's decision and not a lower level adjudicator) has agreed with you therefore the only question is how any loss is to be assessed. EDIT Actually having re-read your first post I would assume this is NOT an Ombudsman's decision and is still with the adjudicator? If so it's not a given that the complaint will be upheld if Barclays disagree with the adjudicator.

Anyone could have earned more than 1.5% interest over the last two years, by replacing the annual payments with 1.5% my father ends up getting less than he would have.

The point of the compensation calculation is to make up for lost years (2 in this case if the ombudsman returns my father to 2008 and 100% capital) with a compensation amounting to slightly more than base.

However, due to the strange situation we are now in, base plus 1% is no longer a reasonable or should that be quite good rate. it is now less than any competent saver could get on an instant access account let alone on a five year lock in.

It no longer compensates by giving a succesfull complainant a reasonable return on their money. Instead it is now punitive as in this case it would cost Barclays far less than the going rate for an inteligent term deposit.

Hence my upset.

BofE base rate + 1% usually works out more generous than it sounds. Firstly its calculated daily, based on the rate at the time. So for example if in April 2008 the base rate was 5%, then daily interest based on an annual rate of 6% (i.e. 6% divided by 365) would be applied each day for the period that rate lasted for. When BofE rates went down to 4.5% in October 2008, it would be based on an annual rate of 5.5% etc. The calculation uses compound interest, not simple. You should clarify this with the Ombudsman, but that's my understanding of it.

Martyn1981

Me again.

If I strip out all the extra information, this is the situation.

If you now sucessfully complain to the Ombudsman, who decides you should be put back to the start and compensated for your loss, the main loss being time. You will now have your time valued at 1.5%.

Until a year or so ago, the Ombudsman valued such time at about 6%. A very reasonable compensation for a fixed term deposit.

Now it is valued at 1.5%.

The compensation calculation has fallen about 75%, but term deposits have changed little. Over the last two years the Principality BS in Wales has been offering 5 year rates of between 4% and 5%.

I can do better than 1.5% on a current account. Instant savings accounts return double the figure.

My point which I clouded with other information is simple. The calculation of lost interest now seriously undervalues our time.

Is there honestly anyone out there that couldn't have earned at least double (probably triple) the compensation rate after spending 30 mins shopping around for a 5 year term deposit on 5k to 50k?

I'm astounded that the current compensation scheme now benefits the company not the investor.