Response to the Department of Business Innovation and Skills consultation: Alternative Dispute Resolution for Consumers

Transcription

1 Response to the Department of Business Innovation and Skills consultation: Alternative Dispute Resolution for Consumers 3 June 2014

2 Response to the Department of Business Innovation and Skills consultation: Alternative Dispute Resolution for Consumers Ombudsman Services consultation response The Ombudsman Service Ltd Government proposals for transposing the provisions of the Directive on Alternative Dispute Resolution (ADR) (2013/11/EU) and Regulation on Online Dispute Resolution (ODR) (524/2013) into UK law. About Ombudsman Services Established in 2002, the Ombudsman Service Ltd (Ombudsman Services) is a not-fordistributable-profit company which runs national private sectors ombudsman schemes providing independent dispute resolution for the energy, communications, property and copyright licensing sectors, the Green Deal, the ABFA, Reallymoving.com. Which? Trusted Traders and the Glass and Glazing Federation. We provide Alternative Dispute Resolution (ADR) services for consumers and businesses. We now have around 9,000 participating companies. During the year ending 31 March 2014, we took 172,472 initial enquiries and resolved 28,640 complaints. The company currently employs more than 300 people in Warrington. Our current run-rate is in excess of 50,000 complaints and we estimate that this year we will accept 75,000 complaints for investigation and a total of 430,000 primary contacts. We have demonstrated that we can successfully integrate new sectors while effectively handle rapidly increasing volumes. Ombudsman Services complaints resolution service operates once a company s own complaints handling system has been exhausted, and we have the authority to determine a final resolution to each complaint. We have an enquiries department which handles primary contacts and where decisions on eligibility are taken. If a complaint is not for us, or has been brought to us too early, we signpost the consumer and offer assistance. Eligible complaints are then triaged. The simplest can be 2

3 resolved quickly, usually by phone, and taking a maximum of three hours. Around 10% are dealt with in this way. For the majority of complaints we collect and consider the evidence from both parties, reach a determination and seek agreement; about 55% are settled like this. The most complex cases require a more intensive investigation, may require more information and lead to further discussion with the complainant and the company to achieve clarification. The outcome will be an Ombudsman Services Decision. Whatever process is followed there is always a right of appeal and escalation. An ombudsman can issue a final decision in any one of the processes where it is clear that there is no evidence that would require changes to the initial determination. Our service is free to consumers and, with the exception of an annual subscription from DECC for the Green Deal, operates at no expense to the public purse. It is paid for by the participating companies under our jurisdiction by a combination of subscription and case fee on a polluter pays principle. Participating companies do not exercise any financial or other control over the company. Ombudsman Services governance ensures that we are independent from the companies that fall under our jurisdiction. We feed back to companies, encouraging and helping them to improve their customer service. It is our view that it will be best for business, the consumer and the economy to have a single ADR scheme or ombudsman for consumer goods and services. A single consumer ombudsman will ensure easy access for consumers, be more cost effective for business and help spread good practice across the economy. A plethora of competing schemes would be confusing for consumers, costly for business, fail to achieve consistency of approach and outcome and will be unlikely to generate public awareness. Ombudsman Services is happy to work with Her Majesty s Government to provide the service, initially through the creation of the residual body, and on setting up a consumer helpline which we are confident we can have ready by Spring

4 Introduction Ombudsmen in the private sector are good for business and good for the consumer. We provide risk free access to civil justice for those claims which are escalated to us, investigating where necessary and offering appropriate resolution and redress. Our processes are proportionate and timely; taking into account relevant regulation, law and technical knowledge; our determinations are consistent and reached on the basis of what is reasonable in the circumstances of the case. In a survey Ombudsman Services conducted earlier this year, we discovered that 33% of those who escalate complaints do so to an ombudsman while 6% will use the small claims court. Nonetheless, in two of the sectors we cover, energy and communications, independent studies by the regulators have shown that only 5% and 7% respectively of eligible complaints are escalated. It is essential, therefore, that whatever action is taken by the Department of Business Innovation and Skills (BIS), availability of ADR is well publicised, access is easy for consumers and businesses ideally through one point of contact, and processes are straightforward and readily understood. To reduce confusion for potential users, in addressing the gaps in provision, BIS should give consideration to building on what already exists, keeping the number of approved or appointed schemes to a minimum. In a context where it will not be mandatory for most businesses to belong to an ADR scheme it is important to encourage them to do so. The advantages outlined above apply equally to businesses and consumers. For business, it is less costly that the courts, quicker and less of a risk to reputation than a court case. An ombudsman offers the advantage of knowing the sector and, crucially, will feed back lessons learned from complaints, working with the business on improving customer service and complaint handling and greater customer loyalty and retention. Consumers have said they are more likely to use a business that offers the protection of ADR and where a complaint is handled well, brand loyalty is strengthened. The reserve powers given in the Enterprise and Regulatory Reform Act 2013 to the Secretary of State to impose regulation and ADR on copyright licensing bodies could be a useful blueprint for BIS to follow. Whatever route is taken by the Government in implementing the Directive, cost to business must be low and the regulatory burden 4

5 light possibly self-regulation through membership of trade associations and professional bodies. 1 If the Directive is to be transposed effectively, it will be necessary to help both businesses and consumers learn and understand what it means for them. We recommend using the term ombudsman for the ADR entities. It is much better known than it once was; using one descriptor will help reduce the possibility of confusion and make education easier. A joint campaign run by the Department, the Ombudsman Association, organisations such as Citizens Advice, Which? and the Trading Standards Institute and associations representing business and consumers would be effective in improving consumer and business understanding of ADR. Our response to the consultation questions Below are our responses to the specific questions that the consultation raised. UK ADR landscape Q1. Do you think there are any significant gaps in the provision of ADR in the UK? Please identify any sectors where you think the provision of ADR is insufficient. While there a number of ombudsman and other complaint handling schemes operating in the UK, there are sectors where there is more than one and others where there is nothing at all. There is little or no provision for the retail and service sectors and the building trades. Provision for professional services is patchy; for example there is an ombudsman for legal services but not will-writers nor for accountants, for chartered surveyors but not architects. While there is provision through either regulators or consumer bodies for passenger transport there is a question about just how independent these bodies can be and whether they will be able to meet the requirements of the Directive. 1 An excellent example of this is ARMA-Q which covers residential managing agents 5

6 It would be logical to make sure that all the regulated utilities are part of the same ombudsman scheme. This could then provide the foundation for moving forward into key areas of consumer detriment. To make sure that there are no gaps, it has been proposed that an independent Scotland would have a single consumer ombudsman covering all consumer contracts for the supply of goods and services. In response to the ADR Directive, the Belgian Government has legislated for a single service that brings together existing ombudsmen schemes and creates a residual body to cover those areas where no scheme exists. ADR for every consumer dispute: Do nothing Q2. Do you agree that the current provision of ADR in the UK is not enough to meet our obligation to have ADR available for all consumer disputes? If you disagree, can you advise which ADR schemes are suitable to handle all disputes, and whether there are limitations to the number of disputes or type of dispute that these schemes could handle? Would these schemes be able to process an increased volume of disputes within the 90 day deadline for concluding disputes set by the Directive? There are a number of schemes already active in the private sector some, like the Financial Ombudsman Service (FOS), very large others operated by a single person. It can been argued that, while the UK may not wish to follow the route of having a single private sector ombudsman, the landscape should be rationalised around three: the Financial Ombudsman, the Legal Ombudsman and a Consumer Ombudsman. The recent report of the Public Affairs Select Committee recommends that a rationalisation of the public services ombudsmen in England takes place. Private social care already falls under the jurisdiction of the Commissioner for Local Administration in England (the Local Government Ombudsman) and consideration is being given as to whether private health care should be brought under the purview of the existing ombudsmen who have responsibility for NHS complaints. 6

7 Ombudsman Services has already demonstrated that we can effectively integrate new sectors. We were established as the Communications Ombudsman in 2003, we were appointed the ombudsman for the energy industry and for chartered surveyors in Since then we have been appointed or approved to run schemes including for other property professionals, the Green Deal, the Asset Based Finance Association, Copyright Licensing, and Which? Trusted Traders. Last year we dealt with nearly 180,000 primary contacts of which 25% were eligible for acceptance as complaints. Our operation and systems are scalable, and more than 90% of investigations completed within 42 days. We have no reason to think that this cannot be achieved in other sectors, but while we acknowledge that some complex or unusual cases might take longer, it should be possible to complete most within the 90 days required by the Directive. Our processes are proportionate and we triage to ensure that the most appropriate method is used. We are continuing to develop our pallet of techniques as we offer our service to new sectors. Residual ADR Q3. Can we expect businesses not currently obliged to use an ADR scheme, to refer complaints to a voluntary residual ADR scheme? What steps could Government and others take to encourage businesses to use a voluntary ADR scheme? There is evidence, for example with lettings agents, that the most reputable companies see the merits of an independent redress scheme. These tend to be the agents who also belong to a trade association. Other examples are schemes for ABTA members, the British Association of Removers, National Association of Finance Directors and the Glass and Glazing Federation. We also have experience of sectors where membership of the scheme is mandatory for those who belong to a trade association or professional body, bringing services that are not covered by law or regulation under our jurisdiction. Government could encourage businesses to be members of an ADR scheme by promoting the benefits which include: lower costs and less risk to reputation than the courts, consistent outcomes, 7

8 feedback leading to improved customer service and improved complaint handling and ultimately to lower complaint numbers saving cost. greater customer loyalty and retention the evidence that suggests consumers are more likely to use a business that provides the protection of independent redress than one that does not When something goes wrong it will be compulsory for businesses to tell customers that ADR bodies exist and whether or not they use one of them. It is likely that not belonging will damage a company s reputation and its market share. A fall-back position could be the approach taken in the Enterprise and Regulatory Reform Act (ERRA) 2013 at Schedule 22 whereby the Secretary of State is given the power to impose a code of conduct and a licensing code ombudsman on the copyright licensing sector if they do not establish a voluntary code and an independent redress scheme. As a result the sector has adopted a voluntary code and appointed Ombudsman Services to run the independent redress scheme. The relevant sections of the ERRA are shown below: SCHEDULE A1 REGULATION OF LICENSING BODIES Codes of practice 1(1)The Secretary of State may by regulations make provision for a licensing body to be required to adopt a code of practice that complies with criteria specified in the regulations. (2)The regulations may provide that, if a licensing body fails to adopt such a code of practice, any code of practice that is approved for the purposes of that licensing body by the Secretary of State, or by a person designated by the Secretary of State under the regulations, has effect as a code of practice adopted by the body. (3)The regulations must provide that a code is not to be approved for the purposes of provision under sub-paragraph (2) unless it complies with criteria specified in the regulations. 2Regulations under paragraph 1 may make provision as to conditions that are to be satisfied, and procedures that are to be followed (a)before a licensing body is required to adopt a code of practice as described in paragraph 1(1); (b)before a code of practice has effect as one adopted by a licensing body as described in paragraph1(2). 8

9 Licensing code ombudsman 3(1)The Secretary of State may by regulations make provision (a)for the appointment of a person (the licensing code ombudsman ) to investigate and determine disputes about a licensing body s compliance with its code of practice; (b)for the reference of disputes to the licensing code ombudsman; (c)for the investigation and determination of a dispute so referred. (2)Provision made under this paragraph may in particular include provision (a)about eligibility for appointment as the licensing code ombudsman; (b)about the disputes to be referred to the licensing code ombudsman; (c)requiring any person to provide information, documents or assistance to the licensing code ombudsman for the purposes of an investigation or determination; (d)requiring a licensing body to comply with a determination of the licensing code ombudsman; (e)about the payment of expenses and allowances to the licensing code ombudsman. Q4. What volume of enquiries and/or disputes could we expect a voluntary residual ADR scheme to receive? It is difficult to calculate the volume of enquiries and/or disputes a voluntary residual ADR scheme might expect to receive as it depends on how wide the capture zone of the requirement is; for example how many sector specific schemes are in place and the nature of complaints that can be considered by the body. Estimates, based on data from Consumer Direct and Citizens Advice, suggest that the number of complaints generated may be in the order of 500,000. Depending on what sector schemes are established it is likely that up to 400,000 of these latent complaints will arrive at the door of the residual scheme. The evidence also suggests that there is a huge number of complaints that are not articulated, reported or escalated. 2 Complaints are not the only measure of workload. We receive many more enquiries than complaints. We currently assume that for every complaint we receive that is 2 Consumer Action Monitor (2014) ICM survey for Ombudsman Services suggests that about 38m complaints are made in the UK annually, half of these formally and half on social media. The survey also found that roughly the same number are dissatisfied with goods or services provided but choose to suffer in silence. 9

10 eligible for investigation we will have approximately four times that number of primary contacts. Q5. Is there a specific operating model that a residual ADR scheme should adopt (e.g. mirror existing ombudsman models)? It is our view that the ombudsman model is well established within the UK and has considerable merit. The services we offer are well understood by consumers and businesses as a fair and objective way of dealing with unresolved complaints and are shown to be effective across a range of different sectors. Our services are not only free to the consumer, costs generally fall on business on a polluter pays basis, and there is rarely a cost to the public purse. The cost to business is substantially less than litigation, removing court and legal fees and also the costs of management time, dealing with the risk to reputation and customer retention. Q6. Can you suggest what an appropriate maximum and minimum settlement value for a residual ADR scheme should be? How have you arrived at these figures? Our view is that it depends on the type of sector about which a group of complainants are dissatisfied. The maximum settlement needs to be commensurate with the intrinsic value of the activities complained about. In the energy and communications sectors for example, the maximum level of award is 10,000 and pegged to the maximum in the Small Claims Court. There are other areas where we can award up to 50,000. It is difficult to set a minimum level below which we are unable to impose an award. It can be argued that it is unfair that if a company has clearly done something wrong and a complaint has been upheld and money owed in redress but not reflected in our decision, it could bring the scheme and the complaints process into disrepute. On the other hand it is important that proportionality is recognised and a better way of dealing with the issue may be to impose a de minimis on the terms for accepting a complaint. 10

11 Q7. What funding model would be appropriate for a residual ADR scheme? Can an ADR provider operate effectively if it is reliant on case fees rather than annual fees? Our experience is that a combination of annual subscription and case fees works well. It is essential that the balance between the two is calculated in such a way to ensure that when case numbers rise unexpectedly the organisation can cope and continue to meet SLAs, for example the time taken to resolve a case and, if numbers fall unexpectedly, it continues to be viable. The day-to-day operation of the scheme will require accurate forecasting which will not be as straightforward for the residual body as a sector specific scheme and so there will be a requirement for some sort of cushion to protect against volatility. Creating a new body to run the residual scheme will require substantial set-up costs which would need to come either from businesses or Government. The most recent example in the private sector is the Legal Ombudsman which received 13.2m in government funding. Ombudsman schemes are either public bodies or not-for-distributable-profit companies. To keep costs low for businesses and their customers we recommend that private sector schemes, however funded, are not required to pay dividends to shareholders. Q8. Should a standard case fee be adopted? What would be an appropriate level? If not, how should the amount charged for each dispute be determined? ADR bodies should handle cases in the most appropriate and proportionate way. In particular sectors, that may mean charging a different fee depending on the nature and complexity of an individual case. Given the diversity of the businesses that will belong to the residual body a uniform case fee is really not an option. 11

12 Q9. Would it be better to have a single ADR body or several ADR bodies operating a residual ADR scheme? What would be the ideal number and what are the reasons for this? We strongly believe that there should be a single residual ADR body for the following reasons: to reduce confusion about which ADR body consumers and businesses should use to minimise confusion between schemes where there are overlaps a single ADR body would be more cost effective for business as it will provide economies of scale given the potential for cross-border disputes, to provide a single point of contact in each EU Member State to enable data collection and the opportunity to apply learning across different sectors. Where it is an individual company rather than a sector choosing which residual ADR body to use the independence of the schemes will undoubtedly be compromised. Competition based on cost risks driving the quality of the ADR bodies to the lowest common denominator, ie the cheapest, with resulting detriment to consumers and businesses. Better signposting for consumers a complaints helpdesk Q10. In light of the other requirements in the ADR Directive which are intended to assist consumers, would a consumer-facing complaints helpdesk be beneficial? A consumer facing-helpdesk is essential to signpost consumers and assist them in accessing the right scheme. We already have an enquiry department that fulfils this function and we are looking at how this can be further developed to offer an online helpdesk for all consumers. There will always be several different ombudsman schemes operating in the UK and the possibility of a single access point should also be considered. 12

13 Q.11. Do you have any comments on the type of service it should provide and the extent to which it should examine the enquiries it receives? A helpdesk should signpost or pass consumers to the correct ADR scheme. It could also support potential complainants in framing their complaint and filter those complaints that are too early for independent review. The helpdesk should not be able to provide advice on the merits of a particular case, nor on whether a case is within or outside a particular scheme s term of reference. Q12. Rather than attempt to create a new service, which existing service or body is best placed to provide this function? There may be several organisations that could provide this function; we are in the process of developing the capability to do it. We see no need to establish a new service. Q13. How could a helpdesk be funded? It is unlikely that Government will be prepared to bear the full cost, nor will the companies and bodies that use ombudsman schemes. Perhaps a middle way could be found, including it in a subscription or case fee and adding a Government grant or subsidy as part of set-up costs. Appointing a competent authority Q14. Do you agree that regulators should act as competent authorities for the ADR schemes that operate in their sectors? Although the directive allows more than one competent body in a member state, our preference would be to adopt the simplest model and have a single competent authority. Currently, regulators play an important role in appointing or approving their specific ADR schemes, but this is not the same as ensuring that there is consistency between 13

14 ADR schemes across all sectors. Given that there are few regulated industries a competent authority or authorities would have to be created for other sectors. A single authority would ensure consistency of application of the ADR directive and reduce bureaucracy (and therefore cost) for the Government. Existing bodies that might be able to take on the function are the CMA, the Trading Standards Institute or the UK Regulators Network. This does not impact on the appointment or approvals processes which would continue to rest with regulators and other bodies as appropriate. Because we provide a service for a range of industries, if there are a number of competent authorities we would face review by a range of bodies in that capacity and a different review by the same bodies acting in their capacity as appointing or approving entities; for example Ofgem, Ofcom and the National Trading Standards Board (Powys County Council) in the case of estate agents. Where we provide the service on behalf of a regulator or government department, as in the case of Ofgem for energy and DECC for the Green Deal, then the regulator could be seen to be conflicted in carrying out a review as competent authority. Should one of the regulators continue to handle complaints, for example the CAA, then it could not be the competent authority for that sector. It is likely that public services ombudsmen may fall under the Directive for certain services provided by public authorities. As ombudsman in the public sector are accountable to the UK parliament or the devolved assemblies or the Scottish Parliament, then the relationship between the competent authority, the body itself and the parliaments and assemblies needs careful consideration. 14

15 Q15. How should the fees paid by ADR providers to a competent authority be determined? Should the size of the fee depend on the size of the ADR provider (for example turnover or number of cases dealt with) or based on other factors? The assumption is being made that fees will be payable. That being the case it is important that they are kept low another reason for having only one competent authority. The fee should relate to the size of the scheme: turnover, number of enquiries, number of cases dealt with, number of employees. Procedural rules for refusing disputes Q16. Do you agree that the Government should allow UK ADR providers to use all of the procedural rules listed in Article 5(4) of the ADR Directive to reject inappropriate disputes? If not, please explain your reasons. We agree Information requirements Q17. Would some suggested wording and guidance be useful in helping businesses meet these requirements? What kind of wording would be helpful? Yes. It is our view that some suggested wording and guidance would be useful in helping businesses meet the procedural rules listed in Article 5(4) of the ADR Directive, to reject inappropriate disputes. Most ombudsman schemes operate to published scheme rules or terms of reference which generally work on the presumption that complaints are included in unless certain stated conditions require exclusion. The relevant section from Ombudsman Services Terms of Reference is attached for reference. Annex A Online Dispute Resolution Contact Point Q18. Do you agree that the ODR contact point should only be required to assist with cross border disputes involving a UK consumer or UK business? Yes. 15

16 Q 19. Should the ODR contact point be allowed to assist with domestic complaints on a case-by-case basis? On the presumption that domestic in this instance means within the UK then yes. Impact on limitation and prescription periods Q20. Do you agree that, where applicable, we should extend the six year time limit for bringing disputes to court by eight weeks, and mirror the amendment made to implement the Mediation Directive? If not, please explain why a different extension period is preferable. Yes. Q21. Are you aware of any sector specific legislation which contains time limits for bringing cases to court which we may also have to amend? We are not aware of any. Scope of ADR: in-house mediation Q22. Do you agree that in-house ADR should not form part of the UK s implementation of the ADR Directive? If you disagree can you please explain why? It is our view that in-house ADR is not compliant with the Directive and should not form part of the UK s implementation. Businesses should have effective in-house processes and resources for resolving complaints. Having engaged with the in-house process, it is important for consumers who remain dissatisfied to have the opportunity to escalate the dispute to a separate and independent body to give them access to an impartial and independent review. 16

17 Binding decisions Q23. Do you agree that the UK should allow certified ADR providers to make decisions that are binding? If you disagree can you please explain why? We operate a process that means that if a consumer accepts the decision of the ombudsman, it is binding on the company. The binding nature of our decisions on the company where the consumer accepts the remedy, ensures the integrity of the scheme, and provides justice for the consumer. We enforce our decisions either through the use of a deed poll with individual companies or a legal agreement with trade associations or professional bodies. Where a consumer rejects our decision they retain the right to take the dispute to the courts; in practice very few do. There may be sectors where, for legal or constitutional reasons, it is not possible to require a binding decision. In these circumstances it will be necessary to find ways to encourage companies to implement redress. In Germany the body dealing with complaints about air travel does not have powers to enforce its decisions yet 80% are complied with. In at least one of the Scandinavian countries information is published on those companies that have not complied with a decision. Applying the ODR Regulation to disputes initiated by business Q24. Do you agree that the ODR Regulation should only apply to disputes initiated by a consumer, and should not apply to disputes initiated by a business? If not, can you please explain why? Article 2(2) of the ODR Regulation gives scope for the UK to apply the Regulation to disputes generated by businesses. This would potentially allow complaints made by a business against a consumer to be submitted to an ADR provider via the ODR platform. It is our view that to ensure consistency with the implementation of the ADR Directive and in order to avoid any confusion that a different approach could generate, it would be better to have the whole system geared towards resolving consumer disputes, rather than have part of the system also helping resolve disputes generated by businesses. 17

18 The exception to this is where micro and small businesses are concerned. A large majority of business to consumers protection activities have always applied to microbusinesses (up to 10 employees). In some instances, these provisions are likely to be extended to small businesses with up to, say, 50 employees (at least in the UK). To exclude these companies (most of who actually employ fewer than five staff), would be regressive. Ombudsman Services is considering ways in which, outside the terms of the schemes we run and therefore outside the scope of the Directive, we might offer dispute resolution across all relevant civil and commercial cases. Call for evidence on simplifying the provision of ADR Q25. Would the benefits of simplifying the ADR landscape over the longer-term outweigh the costs? Who would the costs and benefits fall to? Simplifying the landscape is more likely to save costs than increase them. Our experience in running ombudsman schemes for several sectors is that we can provide significant savings to business in both set up and running costs. That in turn will represent a saving to consumers. Ombudsmen in the private sector are good for business and good for the consumer. We provide risk free access to civil justice, investigating where necessary and offering appropriate resolution and redress. Our processes are proportionate and timely; taking into account relevant regulation, law and technical knowledge; our determinations are consistent and reached on the basis of what is reasonable in the circumstances of the case. For business, it is less costly that the courts, quicker and less of a risk to reputation than a court case. An ombudsman offers the advantage of knowing the sector and, crucially, will feed back lessons learned from complaints, working with the business on improving customer service and complaint handling. Consumers have said they are more likely to use a business that offers the protection of ADR and where a complaint is handled well, brand loyalty is strengthened. 18

19 Q26. What evidence is there that a simplified system would make a major difference to consumers? Are there other ways to achieve the aim of greater awareness and take-up of ADR? The House of Commons Public Administration Select Committee (PASC) published a report on 28 April 2014: Time for a People s Ombudsman Service. PASC has responsibility for scrutinising the Parliamentary and Health Service Ombudsman (PHSO). It conducted a review of the PHSO and has made a series of recommendations for reform. Having considered and taken evidence from the public sector ombudsmen schemes operating in the devolved nations PASC has recommended the creation of a single public services ombudsman for England. This is following the pattern established in Scotland, Wales and Northern Ireland where the existing ombudsman and other public sector complaint handling bodies were brought together in a one stop shop. The UK Financial Ombudsman also brought together a number of private sector ombudsman schemes that covered different financial sectors. In his evidence Peter Tyndall, the Ombudsman and Information Commissioner for Ireland said that: with a joined up public service ombudsman approach as practised in Wales, Scotland and Northern Ireland, it is much easier for the service user to complain An important element of an ombudsman s work is feedback to companies and other bodies and to regulators to highlight systemic problems and to make recommendations for changes that will improve processes and service delivery. An ombudsman or ADR scheme that covers more than one sector can more easily apply the learning across the board. From the perspective of business a simplified system brings several advantages, including cost savings and, for those who provide goods and services in multiple areas, the ease of engaging and building relationships with one ADR body rather than several. 19

20 Q27. Would simplifying the landscape in the longer term be compatible with the introduction of a residual ADR scheme by July 2015? Are there specific ways in which the creation of a residual scheme would need to be undertaken to enable the possibility of later simplification? Longer-term simplification is desirable and therefore establishing a residual scheme by July 2015 needs to be undertaken in a way that will enable the possibility of later simplification. It is therefore necessary to establish a long-term strategic view that would cover issues like the number of private sector ombudsman schemes, whether or not there should be a single consumer ombudsman working alongside the Financial Ombudsman and Legal Ombudsman, the relationship between these bodies and the residual scheme and a decision on whether a future consumer ombudsman would also be the residual body. Approving or appointing a residual scheme by July 2015 that would ultimately be the Consumer Ombudsman would have several benefits for the future simplification of the landscape: a substantial opportunity for pre-profiling and preparatory work; creating a public profile that can subsequently be built on; minimising costs because initial set up does not need to be repeated; evaluation of the scheme could be carried out before future developments are implemented. Q28. What are your views on making the use of ADR a compulsory or voluntary requirement if the landscape is simplified? Making ADR compulsory in a simplified landscape is unlikely to find favour with the businesses that would be required to fund it. Compulsory ADR would also require a massive extension of regulation which would be equally, or more, unpopular. It is much better to find way to encourage businesses to sign by, for example, promoting the benefits of ADR to businesses: lower costs and less risk to reputation than the courts, consistent outcomes, feedback leading to improved customer service 20

21 and improved complaint handling which in turn leads to greater customer loyalty and retention and ultimately to lower complaint numbers saving cost. When something goes wrong it will be compulsory for companies to tell customers that ADR bodies exist and whether or not they use one of them. It is likely that not belonging will damage a company s reputation and its market share. An education programme by consumer groups could inform potential consumers of the risks of using a company that does not offer the protection of independent redress that would serve as an encouragement to companies to join and use an ADR body. Impact Assessment Q29. Do you have any views on the impacts of the options as laid out in the impact assessment? General comments We agree that option 1 is untenable as it fails to comply with the directive. We strongly recommend that the longer-term strategic decision for the implementation of Option 3 is taken with the presumption that the residual body will become the Consumer Ombudsman, through Option 2(b). We disagree with the one-off cost of setting up the information helpdesk. This could be achieved by appointing or approving one of the existing schemes to scale-up which would lead to massive savings. At the same time we doubt whether, even if the service is created from scratch, it will cost as much as the 25.3m- 38.0m suggested. The one-off-cost to government for establishing the residual body will depend on whether an existing scheme is approved or appointed to run the residual body. It can also be argued that this cost should fall on business rather than government. It is our view that the enquiry and complaint volumes articulated may be reasonable for the start-up but are unlikely to reflect the situation once there is someone to complain to. The data from Consumer Direct and Citizens Advice and our own survey indicates a large latent number of dis-satisfied consumers. 21

22 We also take the view that it is likely that dissatisfied consumers will complain to the residual body when the relevant companies are not residual scheme members. This could provoke intense frustration amongst the unlucky complainants and consumer advisers and may result in greater pressure being placed on the courts, leading to greater costs for the courts, businesses and consumers. In the impact assessment it is assumed that there will be benefits to traders such as enhanced reputation and increased trade; we would add the benefits accruing to companies from reduced internal costs from improved efficiencies from handling progressively fewer complaints as a result of feedback from the ADR scheme or avoiding court costs. In the impact assessment the cost to consumers is based on median gross hourly earnings of 11.21/hour ; in our experience few consumers put a price on the time it has taken them to deal with their complaint. The basic assumption of one million ADR enquiries under universal statutory membership appears to have been derived from energy and telecoms statistics and then applied to the estimated non-statutory sectors resulting in 11 million plus enquiries. The argument is made that this may be an over-estimate because sections of the non-statutory economy already have some ADR. This assumption is at variance with the evidence from the recent research by Ofgem and Ofcom that indicate only 5% and 7% of eligible complaints are escalated The estimates used in the assessment also seem to down-play the 2012 Consumer Focus view that up to two million consumer complaints per annum to business already go unresolved (Consultation, paragraph 8.5). Q30. Do you have any views on the key figures, assumptions and questions set out in Annex C? There appears to be no thought given in the consultation to the likelihood that with the adoption of the directive, there will be an inevitable increase in enquiries and complaints, an attitude of If you build it, they will come. It is our experience in setting 22

23 up and running our energy and communications schemes that there steady increases during the first two or three years and much larger annual increases through to year six. It is our view therefore that the total impact of the directive is likely to be much greater over a longer period than assumed. Equally, of course, the consumer benefit is likely to be considerably greater, as will the eventual gain for business. The assumption of up to 250,000 enquiries per annum is not consistent with the Consumer Direct data (2007/8 to 2011/2), which reported an average of more than 775,000 complaints a year, of which 725,000 would be likely to be made to a Consumer Ombudsman (excluding financial and legal). Nor is the assumption in line with our own CAM survey. We estimate that this year, for the services we cover alone, we could receive as many as 430,000 primary contacts. Lewis Shand Smith Chief Ombudsman 3 June

24 Annex A Ombudsman Services Terms of Reference Section 9 9 Limits on the Ombudsman s powers 9.1 The Ombudsman shall not accept a complaint for consideration unless (a) the complainant gave the relevant Participating Company notice of the matter which is the subject of the complaint within twelve months of first knowing of the matter, or as specified in the relevant annex; and (b) either (i) the Participating Company has sent the complainant a letter saying that it is unable or unwilling itself to resolve the complaint to the complainant s satisfaction and providing details of the existence of Ombudsman Services and appropriate contact details for the Ombudsman (a deadlock letter), or (ii) the Participating Company has not issued a deadlock letter within 8 weeks of the complainant s notice (as referred to in paragraph 9.1(a) above) or such longer period as the Ombudsman may consider reasonable, or (iii) other requirements, as stated in the relevant annex, or (iv) the complainant has encountered sustained difficulty in registering a complaint with a Participating Company; and (c) the complaint is made to the Ombudsman within six months of the issue of the deadlock letter or, if no deadlock letter has been issued, within nine months of the complainant first giving notice of the complaint to the Participating Company (as referred to in paragraph 9.1(a) above). The Ombudsman has discretion, however, to accept a complaint made out of time if satisfied that there are exceptional reasons to justify the delay. 9.2 The Ombudsman shall not accept a complaint about a matter: (a) of which the complainant had notice before the date when the relevant Participating Company joined Ombudsman Services; (b) to the extent such matter has been or is the subject of court proceedings or arbitration or some other independent procedure for the determination of disputes brought by the complainant (unless such proceedings, arbitration or other procedure have been abandoned, stayed or suspended either by or with the consent of the relevant court, arbitral or procedural body or with the written consent of the relevant Participating Company); (c) which either does not concern or relate to the Complainant or to a service of the relevant Participating Company falling within the jurisdiction of Ombudsman Services; (d) which concerns or relates to terms of employment or other personnel issues of, in each case, the complainant; 24

25 (e) if it appears to the Ombudsman that it is more appropriate that the complaint be dealt with by a court, by arbitration, by a sector regulatory determination or under another complaints or conciliation procedure; (f) if it appears to the Ombudsman that the complaint is frivolous or vexatious; (g) to the extent that the complaint relates to a Participating Company s commercial judgement in determining whether and, if so, on what terms a service is to be provided. 9.3 In relation to any matter forming the subject of a complaint in respect of which the Ombudsman has previously reached a decision or conclusion (a Concluded Complaint), the Ombudsman shall not accept or consider: (a) a new complaint the subject matter of which and the parties to which are the same (or substantially the same) as those addressed in relation to the Concluded Complaint; or (b) a request to reconsider the Concluded Complaint, unless, in exceptional circumstances, the Ombudsman is of the opinion that (i) significant evidence or facts not available at the time of, or not taken into account in, the Ombudsman s consideration of the Concluded Complaint have come to the attention of the Ombudsman, and (ii) had such evidence or facts been so available or taken into account it is reasonably likely that the decision or conclusion reached in relation to the Concluded Complaint would have been substantially different. 25