Topic 25

Question 1

What are the key consumer rights?

Answer 1

Consumers have the right to buy products and services with
confidence and have rights when things go wrong. In particular,
they have the right to:

• clear and honest information before they buy;
• get what they pay for;
• be supplied with goods that are fit for purpose and services
  that are performed with reasonable care and skill;
• have any faults corrected free of charge, or get a refund/
  replacement.

Question 2

What does the consumer rights act (CRA) 2015 cover?

Answer 2

• what to do when goods are faulty;
• what should happen when digital content is faulty (the first time that digital content has been covered in consumer rights legislation);
• how services should match up to what has been agreed, and what should happen when they do not;
• what should happen when goods and services are not provided with reasonable care and skill;
• unfair terms in contracts;
• greater flexibility for organisations such as the FCA or Trading Standards to respond to breaches of consumer law.

Question 3

How does unfair contract terms apply within the CRA?

Answer 3

The legislation in respect of unfair contract terms applies to consumer contracts between a business and a consumer, and to any notice that relates to the rights and obligations between a business and a consumer or purports to exclude or limit a business’s liability to a consumer.

Question 4

What are the key points of ‘fairness’ within a contract?

Answer 4

• All terms in regulated contracts should be fair, with a contract or notice being deemed to be unfair if it causes a significant imbalance in respect of the rights and obligations of the various parties to the contract to the detriment of the consumer.
• All terms should adhere to the requirement of good faith.
• Any unfair term or notice will not be binding on the consumer unless they choose to be bound by it. Where an element of the contract is deemed to be unfair then the rest of the contract can continue to take effect, as long as this is practicable.

Question 5

What terms could be deemed unfair?

Answer 5

— disproportionately high charges where the consumer decides not to proceed with services that have yet to be supplied;

— terms allowing the business to determine the characteristics or subject matter after the consumer is bound;

— terms allowing the business to determine the price after the consumer is bound.

Question 6

What are the key points of ‘transparency’ within a contract?

Answer 6

• The written terms of a contract should be transparent and expressed in clear, easily understood language. If there is any doubt about the meaning of a written term, the interpretation most favourable to the consumer will be adopted.

Question 7

What are the key points of ‘good faith’ within a contract?

Answer 7

• A term that causes a significant imbalance between the rights and obligations of the various parties to the contract to the detriment of the consumer will be deemed to be in breach of good faith.

Question 8

How can the FCA challenge firms on what they deem to be unfair terms?

Answer 8

• request that a firm amend or remove an unfair contract
  term from its future consumer contracts; and
• prevent a firm from imposing the term against existing
  customers by appealing to a court for an injunction.

Question 9

What are the five key messages from the FCA for firms to focus on when it comes to ‘unfair terms’?

Answer 9

• “Firms should take into account consumers’ legitimate
  interests in relation to contracts.
• Fairness is not contrary to the prudent management of the
  business, but part of it.
• Focusing on narrow technical arguments to justify a contract
  term that, in fact, may be unfair, risks future challenge.
• Schedule 2 to the CRA and the UTCCRs each contain an
  indicative and non-exhaustive list of types of terms that
  may be regarded as unfair. The fact that a term does not
  resemble any of the indicatively unfair terms listed in
  Schedule 2 may not in itself, remove the risk of unfairness.
  Firms need to assess whether a term is fair under the CRA/
  UTCCRs as a whole and in the context of the particular
  product or service.
• Firms should take into account developments in legislation
  and relevant case law concerning the fairness and
  transparency of terms in consumer contracts.”

Question 10

What types of consumer protection are in place within the financial services sector?

Answer 10

Legislation
Ombudsman bureau and other arbitration schemes
Voluntary codes of practice
Compensation schemes
Consumer bodies (Eg Which?)

Question 11

What is ‘The Money and Pensions Service (MaPS), and what is their aim?

Answer 11

MaPS is an arm’s-length body sponsored by the Department for Work and Pensions, with funding through levies on the financial services industry and pension schemes.

Their aim is;

Its mission is to help individuals to manage their personal finances as well as their circumstances allow. Its aim is to deliver a more streamlined service by offering people easier access to the
information and guidance they need to help them make effective financial decisions throughout their lives. The consumer-facing brand of MaPS is MoneyHelper.

Question 12

What are the five core functions of ‘The Money and Pensions Service (MaPS)?

Answer 12

• Pensions guidance: provision of information for the public about workplace and personal pensions.
• Debt advice: providing people in England with information and advice on debt.
• Money guidance: provision of information to enhance people’s
  understanding and knowledge of financial matters and day‑to‑day money management skills.
• Consumer protection: working with the government and the FCA to protect consumers.
• Strategy: working with all bodies involved in financial capability to drive significant, co-ordinated change over the longer term.

Question 13

Which bodies have ‘super-complaint’ status?

Answer 13

Which? and Citizens advice

Question 14

What is ‘Dispute Resolution: complaints (DISP)

Answer 14

DISP covers how complaints are to be dealt with by firms, payment providers and the Financial Ombudsman Service (FOS).

Question 15

What is the FCA’s definition of a complaint?

Answer 15

“any oral or written expression of dissatisfaction, whether justified or not, from or on behalf of a person about the provision of, or failure to provide, a financial service, claims management service or a redress determination, which alleges that the complainant has
suffered (or may suffer):
- financial loss;
- material distress; or
- material inconvenience”.

Question 16

The FCA defines an eligible complaint as what?

Answer 16

• a private individual, including individuals acting as personal guarantors for loans to businesses they are involved in and consumer buy‑to‑let consumers;
• a business with an annual turnover below £6.5m and fewer than 50 employees, or an annual balance sheet below £5m;
• a charity with an annual income of less than £6.5m when the complaint is made; or
• a trustee of a trust that has a net asset value of less than £5m when the complaint is made.

Question 17

List the complaints handling procedure

Answer 17

Acknowledge - Acknowledge receipt of a complaint promptly, in writing

Investigate - Ensure complaints are investigated by a person of sufficient competence who, wherever possible, was not directly involved in the matter under complaint.

Resolve - Aim to resolve complaints promptly, within eight weeks

Inform - Keep the complainant updated on progress

Advise - Advise the customer that they can refer the matter to the Financial ombudsman service where a resolution cannot be found within eight weeks.

Provide - Provide the complainant with a final response letter, which must ‘adequately address the subject matter of the complaint’ and notify complainants of their right to approach the FOS within six months of the date of the letter if they are not satisfied

Question 18

What are firms required to do in terms of complaints reporting and investigations?

Answer 18

„ report to the FCA on their complaints‑handling on a six‑monthly basis;

„ investigate the root cause of complaints and take action to prevent the recurrence of similar issues in future.

Question 19

On a six-monthly basis, firms are required to report to the FCA was information regarding complaints?

Answer 19

„ total number of complaints received;

„ total number of complaints closed:
— within four weeks or less of receipt;
— within more than four weeks and up to eight weeks of receipt; and
— more than eight weeks after receipt;

„ total number of complaints:
— upheld in the reporting period; and
— outstanding at the beginning of the reporting period;

„ total amount of redress paid in respect of complaints during the reporting period; and

„ the root causes of complaints and corrective action taken to prevent
recurrence.

Question 20

How long does the FCA have to respond to a ‘super-complaint’ from a designated consumer body?

Answer 20

90 days

Question 21

What kind of information may be in a FCA response to a super-complaint?

Answer 21

„ announce plans to consult on an issue;

„ set out a timetable for regulatory action which would allow
the FOS to consider whether or not to place a hold or stay
on complaints;

„ explain how the FCA is already taking action to address an
issue; or

„ explain why it is not taking any action.

Question 22

What does the FOS take into account when dealing with complaints?

Answer 22

„ the relevant:
— law and regulations;
— regulators’ rules, guidance and standards;
— codes of practice; and

„ where appropriate, what they consider to have been good industry practice at the relevant time.

Question 23

What is a time-barred complaint?

Answer 23

A complaint made outside the time limits for referral to the FOS; a firm
may reject such a complaint, via a final response, without considering
its merits.

Question 24

What are the time limits on complaints to FOS?

Answer 24

Complaints to the FOS must be made within six months of receiving a final response, six years of the event that gives rise to the complaint, or within three years of the time when the complainant should have become aware that they had cause for complaint, whichever is the later.

Question 25

Who commonly makes complaints to the Pension Ombudsman service (POS)?

Answer 25

„ members or ex‑members of schemes;
„ spouses of members or ex‑members of schemes;
„ widows or dependants of members who have died;
„ solicitors or others representing the interests of such people.

Question 26

To qualify for compensation, a claimant must be eligible under rules outlined in the FCA Handbook. The main points are as follows:

Answer 26

„ Compensation can only be paid when an authorised firm is in default.
Claims cannot be made against the FSCS for other losses, ie losses due to negligence, poor advice or a fall in stock market values.

„ Compensation can only be paid for financial loss and there are limits to the amounts of compensation payable.

„ The FSCS was set up mainly to assist private individuals, although smaller businesses are also covered. Larger businesses are generally excluded, although there are some exceptions for deposit and insurance claims.

„ The FSCS does not cover firms based in the Channel Islands or the Isle of Man.

Question 27

What are the five FSCS sub-schemes?

Answer 27

Deposits
Debt management
Investments
Home Finance
Insurance companies
Insurance brokers

Question 28

What are the compensation limits for ‘deposits’?

Answer 28

Generally 100 per cent of £85,000 per person per firm, although
there is cover of up to £1m for temporarily high deposit balances.
The £1m limit applies to balances that are held for less than six
months and provides additional protection where a person’s
savings are temporarily boosted by certain life events such as:

„ sale of a house;
„ divorce settlement;
„ taking pension benefits;
„ receipt of inheritance;
„ redundancy payment;
„ criminal injuries compensation.

Question 29

What are the compensation limits for ‘debt management’?

Answer 29

Customers with money held by debt management firms may
be covered in relation to client money they held with a failed
debt management firm of up to £85,000.

Question 30

What are the compensation limits for ‘investments’?

Answer 30

The FSCS is triggered when a firm authorised to advise on or
arrange investments goes out of business, and is considered
by FSCS to be unable, or likely to be unable, to pay claims
made against it. This will generally be because the firm has
stopped trading and has insufficient assets to meet claims, or
is insolvent.

Maximum claim
100 per cent of £85,000 per person per firm.

Question 31

What are the compensation limits for ‘home finance’?

Answer 31

Customers of authorised mortgage firms are protected by the
FSCS for business conducted on or after 31 October 2004. FSCS
can provide protection if a mortgage firm is unable, or likely
to be unable, to pay claims against it. FSCS is triggered when a
firm authorised to advise on or arrange mortgages by the FCA
goes out of business, eg if the firm goes into administration
or liquidation.

Maximum claim
100 per cent of £85,000 per person per firm.

Question 32

What are the compensation limits for ‘insurance companies’?

Answer 32

Maximum claim
„ For all long‑term insurance and for certain types of general insurance, compensation is 100 per cent of the value of the policy with no upper limit. (Policies with 100 per cent protection include long‑term and general insurance that provide benefits on death/disability only.)

„ Where a long‑term policy includes a savings as well as a protection element, the protection element has 100 per cent protection.

„ Annuities that are being used to provide an income also receive 100 per cent protection.

„ If the insurance is compulsory (such as employers’ liability
cover or motor insurance), the figure is 100 per cent of the whole amount.

„ For other types of insurance the compensation limit is 90 per cent of the claim with no upper limit.