Financial Ombudsman losing it?
January 23rd, 2008 at 15:14 UTC by Ross Anderson
I appeared on “You and Yours” (Radio 4) today at 12.35 with an official from the Financial Ombudsman Service, after I coauthored a FIPR submission to a review of the service which is currently being conducted by Lord Hunt.
Our submission looks at three cases in particular in which the ombudsman decided in favour of the banks and against bank customers over disputed ATM transactions. We found that the adjudicators employed by the ombudsman made numerous errors both of law and of technology, and concluded that their decisions were an affront to reason and to justice.
One of the cases has already appeared here on lightbluetouchpaper; the other two cardholders appeared on an investigation into card fraud on “Tonight with Trevor MacDonald”, and their case papers are included, with their permission, as appendices to our submission. These papers are damning, but the Hunt review’s staff declined to publish them on the somewhat surprising grounds that the information in them might be used to commit identity theft against the customers in question. Eventually they published our submission minus the two appendices of case papers. (If knowing someone’s residential address and the account number to a now-defunct bank account is enough for a criminal to steal money from you, then the regulatory failures afflicting the British banking system are even deeper than I thought.)
The Financial Ombudsman Service, and its predecessor the Banking Ombudsman, have for many years found against bank customers and in favour of the banks. In the early-to-mid 1990s, they upheld the banks’ outrageous claim that mag-stripe ATM cards were invulnerable to cloning; this led to the court cases described here and here. That position collapsed when ATM criminals started being sent to prison. Now we have another wave of ATM card cloning, which we’ve discussed several times: we’ve shown you a chip and PIN terminal playing Tetris and described relay attacks. There’s much more to come.
The radio program is online here (the piece starts 29 minutes and 40 seconds in). We clearly have them rattled; the ombudsman was patronising and abusive, and made a number of misleading statements. He also said that the “independent” Hunt review was commissioned by his board of directors. I hope it turns out to be a bit more independent than that. If it doesn’t, then consumer advocates should campaign for the FOS to be abolished and for customers to be empowered to take disputes to the courts, as we argue in section 31-32 of our submission.
Entry filed under: Banking security, Legal issues, Politics, Security economics
13 comments Add your own
1. Ben Turner | January 23rd, 2008 at 17:10 UTC
Great stuff as always, Ross. With chip and pin came a definite attitude of “this stuff is technical, so unlike the old signature method, all losses are now all your fault, dear customer”
It’s always reassuring to read that some proper research is still being done to show that this is not the case, and technology just makes the problems hardly to understand, but not necessarily harder to abuse. Especially when “the good guys” aren’t being made aware what the exploits are, and how to best prevent them.
2. Stu Thomas | January 24th, 2008 at 10:34 UTC
Public confidence is lost with the ombudsman in my case. Terrible and now typical it would appear. Justice and reason, sounds like some basic legal awareness is needed within those bodies that are meant to protect us, or at least be impartial and just.
Unhappy, again.
3. Matt Palmer | January 24th, 2008 at 15:28 UTC
Good work. I heard the radio program at the time, and I also picked up on the “independent” review being commissioned by the FOS. The one good thing he said was that he acknowledged that no system gives a 100% guarantee of security.
However, he then neatly sidestepped the huge questions over a lack of technological / legal knowledge on their part, by just saying “each case is different”. Which doesn’t answer the specific questions at all. He didn’t even accept that the FOS had any shortcomings in their approach in any of their cases.
History seems to be repeating itself. As long as these issues are externalities to UK banks we won’t get better security.
4. A Job | January 24th, 2008 at 16:24 UTC
I have difficulties in believing that, such organizations do actually exist in the so-called modern world, but when i know how powerful is the financial world and its links within the political spectrum, i understand while the common man like us got to be sacrifice. But thank heaven we got guys like you Ross and other who still believe in the name of integrity.
5. cassiel | January 24th, 2008 at 17:43 UTC
Good article. I listened to the You and Yours item yesterday, and yes, it did indeed appear that the ombudsman gradually severed his connection with reality as the interview progressed. I just hope that we get some test cases going the right way before many more people become fraud victims due to such administrative arrogance.
6. William Watson | January 25th, 2008 at 15:34 UTC
Interestingly, all parties in the cases provided did not challenge the authenticity of the card used in the withdrawal.
Surely, it should be expected that the Banks (and FOS) have to prove that the original copy of the card must have been used (and hence with some knowledge of the cardholder). Alternatively, the complainants should have evidence that all elements of the card are clonable in addition to the issue of ‘yes-cards’ - another non-contested point.
But I’m sure all this is more easily said than done, especially in the regimes on display here.
7. Steven J. Murdoch | January 26th, 2008 at 21:13 UTC
That was a very revealing interview from the FOS representative. I was especially surprised at the admission that they decide on a customers guilt based on procedures, evidence and criteria which are not disclosed to the public or complainant. I had hoped secret courts were going out of fashion given their abuse in the past — sadly it appears not.
The claim that the FOS’s “funding comes in effect from the financial services authority” is also intriguing. It appears to directly contradict their March 2007 statement:
8. geoff chaplin | February 5th, 2008 at 23:56 UTC
Not only banks, I believe the Ombudsman Service is equally prejudiced in favour of automatically defending the Insurance Companies, acceptiing their word without investigation, and even continuing the same view after proved wrong.
9. Chris | February 7th, 2008 at 06:04 UTC
Is regulatory capture as common in the UK as it is in the US? If this ombudsman became a regulator after a long career in the industry over which he now makes decisions, it might explain (but not excuse) a thing or two.
10. R. Benson | February 16th, 2008 at 13:00 UTC
What a complete waste of time the Ombudsman is, you do know that they have ‘Members’ don’t you? All the banks and the Insurance Co’s are ‘Members’ A damm good complaints dept, payed by the tax-payer. Your complaint unless its a few quid almost always gets rejected. NOT WORTH THE TROUBLE. They are there for appearances sake to make us think we are going to get a fair shake. NOTHING IS FURTHER FROM THE TRUTH.
11. R. Benson | February 16th, 2008 at 13:16 UTC
Just one more word of advice.Avoid HSBC Insurance (Ireland) like the plague. They employ ‘bully boys’ Davies (loss adjusters) to help them avoid paying out.
12. Mickey | February 18th, 2008 at 07:59 UTC
FOS have certainly lost their mind but not in the favour of the financial industry as you claim. Quite the opposite. At the moment the secured loans brokers are in a state of shear panic as FOS has asked all accusations of PPI mis-selling to be paid out without contest - they refuse to back anyone. That means the broker - regardless of whether they were guilty of mis-selling has to pay back the entire policy amount and not just the commission they got off it. The lender doesn’t pay anything, nor does the insurance company. It’s only the broker that foots this bill.
What consumers and FOS fail to realise is that most brokers aren’t big banks. They haven’t the billion pounds of reserves to protect them. Some brokers are little more than family-run businesses. So across the country there’s a huge number of brokers having to lay off their staff as each claim can be as high as £12k and after just a few of those they’ll crumble.
FOS is doing this to protect its own image and it needs a scapegoat to flog. Brokers are a soft target.
Ultimately the consumer loses out as the level of choice diminishes and the only ones who survive are the big sharks who they wanted to attack in the first place.
So when you’re all attacking the industry wanting your pound of flesh: Try to realise there’s human beings behind it at all levels. Over 20 people got laid off at our broker - I was one of the lucky ones. We don’t mis-sell and if we were allowed to contest the cases we’d win but with FOS declaring open season on us we’re gonners.
13. I A Sutton | April 17th, 2008 at 09:59 UTC
I believe the Financial Ombudsman Service lost it a long time ago. Were you aware that this ‘Service’ is not a Public Authority and therefore is not subject to the Powers, Fairness and Transparency of the ‘Freedom of Information Act?’ The FOS investigated a case that was based on my Company; ME the Director and Complainant. I applied for a Commercial ‘Business’ Loan and the bank agreed to lend, following credit-checking of director and Company. The bank stated it will take 5-weeks to complete. Instead, their procedure took 5-months. Of course, this proved financially detrimental to my Company start-up and as a result it could not trade. As a Complainant, I took my case to the FOS who investigated and sided with the bank. It was obvious that the FOS did not request or acquire information from the bank (Firm) as it would of confirmed that the bank did in fact agree to lend at the period we stated. Now, I cannot get ALL the information that the FOS used to conclude my case as the Freedom of Information Act does not apply to them. This is Outrageous! How can they not be ‘Subject’ to this level of transparency and Fairness? The FOS should scrapped and, instead, public money should be used to provide the tax payer with a Fair, Honest and Tranparent system. As a result of the banks failings, I have lost my business. Again, it seems like the ’systems’ that govern us are failing us.
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