Credit Card Application Ombudsman

thegoodman

How would this change help the customer?
Still decline is decline you don't get the card.
How would the manual review will help?
Also the card companies are private companies and can increase, decrease or refuse credit as they see fit. So if you Appel what would you achieve with the manual review.
Even if the review says you should have got the card still the credit company can say no. The credit is 100% up to the bank or card company to say yes or no. No body will be able to force the card companies to give more cards out.
Apart from the added cost I can't see anything else or benefit.

chattychappy

The FCA will not be regulating credit cards when it takes over. Essentially they are taking over the regulated activities of the FSA. Note 3.25 in the document you quote:

It would also be impractical, if not impossible, for the FCA to intervene in other areas where it does not have a statutory responsibility. For example, the FCA is not proposing to approve financial service products beyond those authorised at present by the FSA and does not intend to provide kite-marking or product approval.

The point about CCs is that it is not your money that is at risk. So it doesn't need the same protection as investment or paying for investment advice. It is a product - true people can misunderstand them and pay more than they need to (a bit like signing up for the wrong mobile phone contract deal) - but it is a different kind of animal. You may disagree with this, but that was the ethos behind FSA. The FSA was created by the Financial Services and Markets Act 2000 which was a response to to the perceived failure of the previous industry regulators, FIMBRA, LAUTRO etc.

It might make sense for the FCA to take over credit licensing from the OFT. But I wouldn't expect any change to the scope of the regulation.

Frankly after the mess-ups during the "financial crisis", the Tories said they'd abolish the FSA. But part of the failure was the political pressure on the FSA rather than the structure itself. So the promise is being kept - the FSA is being wound up and the regulatory functions are being moved around. There's a new name and new logo. But I wouldn't expect much to change in the short term and bear in mind that Europe (eg through MFID) is increasingly controlling the extent and nature of regulation.

leetabix

thegoodman wrote: »

How would this change help the customer?
Still decline is decline you don't get the card.
How would the manual review will help?
Also the card companies are private companies and can increase, decrease or refuse credit as they see fit. So if you Appel what would you achieve with the manual review.
Even if the review says you should have got the card still the credit company can say no. The credit is 100% up to the bank or card company to say yes or no. No body will be able to force the card companies to give more cards out.
Apart from the added cost I can't see anything else or benefit.

To answer your first comment - a change would help the customer by:

1) In the event of a change to a manual review by an ombudsman, the financial institution would be demonstrating that it is implementing checks that aren't financially irresponsible (i.e. deliberately taking on customers that are likely to accrue fees/charges/debts with interest)

2) In the event of information disclosure to a customer as to why they were declined, this will enable the customer with information for positive action in the area of financial responsibility.

On to your second comment - if 1) is introduced then a decline wouldn't equal a decline - a regulator can use its powers to force the company to reverse its decision based on a review by an ombudsman. For your reference, from the FOS website:

"If we decide a business has treated the consumer fairly, we will explain why. But if we decide the business has acted wrongly – and the consumer has lost out as a result – we can order it to put things right."

Obviously the FOS doesn't currently cover this process. But the above paragraph from its website would apply if the regulator introduced regulation in this area, where the 'put things right' action would be to reverse its decision on providing the applicant with credit.

In the event of 2) this would be more clear cut - if the regulation is amended so that companies have to provide more specific information for refusal (but as a valid point was made earlier by izools, this would admitted be trickier to implement), then the ombudsman could order them to tell you.

Hopefully the above then answers your third comment about them being able to refuse people as they see fit - if the regulation was changed, they wouldn't be able to, due to the ombudsman ordering them to reverse a decision where the case was escalated to them by a consumer affected by the process.

Hopefully from my paragraphs in 1) and 2) you can see a clear benefit to the consumer, at a detriment to the business, if the regulation was introduced. Also, you should now be able to see how a regulator can enable an ombudsman to reverse any decision in its remit that a private company takes.

If your comments were made in light of current regulation, you would be absolutely right. The context of this thread however is about the situation if the regulation was introduced, and hence the above comments are incorrect.

leetabix

chattychappy wrote: »

The FCA will not be regulating credit cards when it takes over. Essentially they are taking over the regulated activities of the FSA. Note 3.25 in the document you quote:

It would also be impractical, if not impossible, for the FCA to intervene in other areas where it does not have a statutory responsibility. For example, the FCA is not proposing to approve financial service products beyond those authorised at present by the FSA and does not intend to provide kite-marking or product approval.

The point about CCs is that it is not your money that is at risk. So it doesn't need the same protection as investment or paying for investment advice. It is a product - true people can misunderstand them and pay more than they need to (a bit like signing up for the wrong mobile phone contract deal) - but it is a different kind of animal. You may disagree with this, but that was the ethos behind FSA. The FSA was created by the Financial Services and Markets Act 2000 which was a response to to the perceived failure of the previous industry regulators, FIMBRA, LAUTRO etc.

It might make sense for the FCA to take over credit licensing from the OFT. But I wouldn't expect any change to the scope of the regulation.

Frankly after the mess-ups during the "financial crisis", the Tories said they'd abolish the FSA. But part of the failure was the political pressure on the FSA rather than the structure itself. So the promise is being kept - the FSA is being wound up and the regulatory functions are being moved around. There's a new name and new logo. But I wouldn't expect much to change in the short term and bear in mind that Europe (eg through MFID) is increasingly controlling the extent and nature of regulation.

Ah, I read 3.25 slightly differently - I thought that the 'statutory responsibility' would indicate the 6 points in 3.3, and that the example given was for new financial product approval for the financial institutions (i.e. a new type of product a bank wants to bring to market) rather than someone applying for a financial product already existing on the market. Also in 3.27 it notes:

3.27 The FCA will not set social policy as this is a matter for the government. However,
as set out in: A new approach to financial regulation: building a stronger system
(February 2011), the government has acknowledged that financial inclusion is an
important issue to address and that the FCA has a mandate to do so under its
efficiency and choice objective.

I do have to admit that it's not the most clearly worded document. And, your notations about the FSA are quite interesting, I didn't know about the history behind them being set up, and why the FSA was being turned into the FCA.

thegoodman

leetabix wrote: »

To answer your first comment - a change would help the customer by:

1) In the event of a change to a manual review by an ombudsman, the financial institution would be demonstrating that it is implementing checks that aren't financially irresponsible (i.e. deliberately taking on customers that are likely to accrue fees/charges/debts with interest)

Unlikely to happen: Can only have a rule / law in general not review each application. Also too much cost to reiew each case. Most customers with decline will go to the ombudsman for review. The ombudsman would need to look at each and every case. Who is going to pay for this?
You are talking about 1000's of cases a day.

2) In the event of information disclosure to a customer as to why they were declined, this will enable the customer with information for positive action in the area of financial responsibility.

Unlikely to happen: This can also be use to play the system. If all card companies told you what you need to do to get the credit card, some people will fill-in the application with that in mind this can lead to customers providing wrong or missleading information. Some people may end up with the credit card when not fit to have the credit leading to further debt.


On to your second comment - if 1) is introduced then a decline wouldn't equal a decline - a regulator can use its powers to force the company to reverse its decision based on a review by an ombudsman. For your reference, from the FOS website:

"If we decide a business has treated the consumer fairly, we will explain why. But if we decide the business has acted wrongly – and the consumer has lost out as a result – we can order it to put things right."

Unlikely to happen: The credit is not your money. The money is given to you up to the limit to spend. If am ombudsman over rule the decline and the customer do not pay, Who is going to pay the credit back to the card company? The tax payer or the card company. The card company may turn around and say "We never wanted to give credit to this customer, so it is not our fault"


The above statement from FOS is true when you purchase a product such as Current Account, Unit Trust, Pension etc where you are giving the money to be look after by them.

Obviously the FOS doesn't currently cover this process. But the above paragraph from its website would apply if the regulator introduced regulation in this area, where the 'put things right' action would be to reverse its decision on providing the applicant with credit.

In the event of 2) this would be more clear cut - if the regulation is amended so that companies have to provide more specific information for refusal (but as a valid point was made earlier by izools, this would admitted be trickier to implement), then the ombudsman could order them to tell you.

Hopefully the above then answers your third comment about them being able to refuse people as they see fit - if the regulation was changed, they wouldn't be able to, due to the ombudsman ordering them to reverse a decision where the case was escalated to them by a consumer affected by the process.

Again who would pay the credit back if the customer refuse to pay back the credit to the card company. Surely it is not the card comapny at fault because the ombudsman forced them to give the credit. So the the Ombudsman would need to create some kind of fund using the tax money to pay back to the card company or take some kind of insurrance using the tax money.
If tax money was used than card companies will decline a lot of applications because once declined it would be covered by the insurance backed by the goverment.

Hopefully from my paragraphs in 1) and 2) you can see a clear benefit to the consumer, at a detriment to the business, if the regulation was introduced. Also, you should now be able to see how a regulator can enable an ombudsman to reverse any decision in its remit that a private company takes.

Only thing I see is more tax, more people playing the system so more debt and more charges as added work by the card companies need to be pay for by the card users.

If your comments were made in light of current regulation, you would be absolutely right. The context of this thread however is about the situation if the regulation was introduced, and hence the above comments are incorrect.

I don’t think the government in this free world or anybody can force the private company to give more credit either via card or loan. If this was the case it would be the end of credit cards as the banks will be forced to give out credit cards to people who may not fall within their credit requirement. A lot of time banks have a target where x amount of credit is on the card. If that amount gets high a lot of time banks change the perks to reduce the debt. With your system this would not be possible.


Anyhow currently goverment is trying to reduce the debt not increase.

eddddy

Hi leetabix

I think there may be a bigger picture to consider.

It sounds a little like you are saying that credit card applications should almost be means tested - if an applicant fits all the 'creditworthyness' criteria they should be automatically be accepted. (And if they are rejected, an ombudsman should be allowed to double-check the 'creditworthyness' criteria.)

However, there are a number of other considerations, including...

Amex (or whichever CC company) will have acceptance limits based on their financial reserves - they cannot issue a limitless number of credit cards. (As an example, they may only be able to issue 100 cards in a particular month, each with an average credit limit of £2000. i.e. an exposure of £200k)

They may get 200 ideal applicants in that month. They will have to reject 100 of them, because they don't have sufficient reserves. I guess it's up to the CC company to decide how they do this - it may even be on a "first come, first served" basis - you might have been the 101st suitable applicant.

Also, building on izools post on customer profiling (Neural nets etc), I suspect they also look at 'customer lifetime value'. i.e. how much profit they can make out of you during the whole period that you are a customer. This would include the likelihood of cross-selling and up-selling to you.

With Amex, for example, they may be considering: "If we give this applicant a special deal on the credit card now, how likely is it that he/she might upgrade to a charge card in a few years, and how likely is it that we can sell him/her Amex travel services?".

Or Lloyds TSB might be considering "If we give this applicant a special deal on the credit card now, how likely is it that he/she might later take out a loan, mortgage or insurance with us?"

As izools says, they may determine the applicants potential 'customer lifetime value' using a neural net based computer model. Putting it simply, the computer will decide if you are similar to other customers who have made lots of money for the CC company in the past.

So you may have been rejected simply because Amex's computer doesn't think you will generate them much profit in future years.

CC companies will have hired the best expertise available (like you and your colleagues at IBM), to build their customer value forecasting systems. An ombudsman will not be in a position to say "your system has got it wrong".

So, as others have suggested, credit card acceptance is essentially a commercial decision based on many factors like applicant creditworthyness, risk, profiotability, availability of reserves etc. It really doesn't feel like an area that an ombudsman would/should get involved with.


eddddy

pqrdef

opinions4u wrote: »

The card company have met their obligation to give you a reason.

Seems debatable. I once worked somewhere where the conditions of service, negotiated with the unions etc, included detailed regulations about applications for promotion. One clause said that failed applicants should be given a reason.

In practice, all failed applicants got the identical form letter from HR, generated by a clerk and a mail-merge program, which stated that the applicant didn't meet the criteria.

I don't think that complied with the agreed intention at all.

Question is, in the OP's case, if the rules had said explicitly that "internal score" was a sufficient reason, would they have been agreed? Since they would clearly have been self-defeating, surely not.

thegoodman

eddddy wrote: »

Hi leetabix


It sounds a little like you are saying that credit card applications should almost be means tested -


eddddy

I agree 100%. This can lead to lot more credit cards. If you meet the fix criteria you get the credit. I don't think the government would want a system like that. It will cause more problems than benefits and at a very high cost. Every decline will go to the review. Banks would need to release private information such as amunt of funds available for credit etc to public. If decline is due to maximum funds used than it would need to put a public notice to say product not available.

The op is one of them thing sound good on paper, we can get the card companies back etc but it do not work.

It can work if the credit card was backed by the government via post office or benefit office. All non payments are backed by NI, say increase of 0.5% to NI go the funds for nonpayment. You get the card if you meet basic requirements.

thegoodman

I have forwarded the link to this post and some important points from this post to FCA and OFT. Not sure where to send.
This is to make sure in case either of them get the communication from the OP to understand what others are saying. Also to make sure the cost and other points made are understood by them.
I think we are not going to get much feedback now. It seem the op is not answering.

opinions4u

leetabix wrote: »

Where did I mention the FOS?

Post no. 5.

Remember that the role of the Ombudsman is to regulate financial instiutions by forcing them to adhere to regulations that the financial institutions themselves wouldn't adhere to in the event of the Ombudsman not existing, to the benefit of the consumer and the detriment of the financial institution. Hopefully then, you can see the merit of the above potentially being introducted.