Thorn in the flesh of financial institutions
A bill to give him the power to name and shame repeat offenders is on its way, but he wants more — a system that identifies poor performers, he tells Kyran Fitzgerald
The Financial Services Ombudsman has been a thorn in the flesh of the country’s financial institutions for some time now, but do the scratches really run deep enough to persuade our banks and insurance companies to change their ways?
In the absence of further reforms aimed at beefing up the powers of the Office, the answer would have to be: No.
This week, the ombudsman, Bill Prasifka, unveiled his latest biannual report.
It reveals that the level of complaints being recorded is once again on the rise, having reached a plateau in 2010 and 2011, following a large spike in the wake of the financial meltdown.
The ombudsman has made it clear that he would to like to see the removal of the veil of anonymity which envelopes offending institutions.
He identified a pattern where certain companies deal promptly with complaints, while others decline further contact, leaving it to the customer to bring cases to the ombudsman.
By highlighting repeat offenders, only then will the organisations at the heart of the problem of ill-treatment of customers really feel the heat and be impelled to change their ways.
The Oireachtas is examining legislation which would give the ombudsman the power to name and shame repeat offenders.
A bill is wending its way slowly through the Oireachtas and is now at the Committee stage.
Mr Prasifka would go further and institute a league table system, aimed at identifying particularly poor performers. He is also seeking a beefing-up in the office’s resources, including an addition to the office’s staff compliment.
His concern is that the office could begin to fall behind in its handling of complaints resulting in a backlog developing.
Greater funding should not hit the state coffers. The office is funded by way of a levy on the financial sector, so any additional resources would be provided this way and would not fall on the taxpayer.
It is worth recalling that the ombudsman has only been existence since Apr 2005.
Prior to that, voluntary redress schemes were operated separately by the banking and insurance sectors. He who paid the piper largely called the tune. The schemes, while worthy, were limited in their impact.
This soon changed — a little.
Sadly, establishing the office did little to halt a rampant financial sector in its tracks.
The first ombudsman, Joe Meade, was a straight-talking civil servant who did his best, but found himself dealing with a pretty determined bunch of people, many of whom were engaged in blatant product-pushing.
They did not appreciate it when a more sober-minded Mr Meade sought to rain on their sales parade.
Following Mr Meade’s retirement, Bill Prasifka came to the job in early 2010.
He had extensive experience both in the private sector, as a partner in William Fry solicitors, and in regulation, as chairman of the Competition Authority and as Aviation Regulator.
He is polite and accessible, but with a lawyer’s impatience for media catchphrases.
As aviation regulator, he regularly crossed swords with Ryanair’s Michael O’Leary, though his real battles were with the Dublin Airport Authority. He admits that the record in aviation regulation was mixed.
Later, he signed off as Competition Authority chairman with a significant victory over the publicans.
The year 2008 was a major turning point, as a host of chickens came home to roost, in the world of consumer banking and finance.
The level of complaints soared. Five years into the downturn, the ombudsman might have predicted an easing off in the level of complaints, particularly in the area of mis-selling, given the existence of a six-year statute of limitation.
In fact, as Mr Prasifka notes, complaints related to mis-selling have remained stubbornly high, a source of surprise to him.
The IT and administrative meltdown at Ulster Bank means that the ombudsman is facing into an exceptionally busy autumn.
In the first half of this year, the ombudsman received 3,700 complaints against financial institutions, a rise of 5% on the preceding six months.
The success rate for applicants was a little bit below 30%. The courts have shown a reluctance to overturn decisions of the office.
About 40% of the complaints related to tracker mortgage issues.
Here, an important legal victory was chalked up by the Ombudsman when Mr Justice Gerard Hogan of the High Court upheld a finding by the ombudsman against Permanent TSB in a series of complaints brought by borrowers.
The ombudsman had ruled that PTSB had a duty to make it clear to customers that breaking out of a fixed rate mortgage would lose them their tracker.
Affirming this decision, Mr Justice Hogan opined that a “retail bank should properly alert its customers... to the potentially serious consequences of a particular decision, especially when it seems clear those customers are seeking advice and guidance”. A bank is under a duty to spell it out in clear language, he said.
Mr Prasifka views the judgment as significant. The tracker mortgage issue looms ever larger on his in tray. “The big issues facing us currently concern mortgages and payment protection insurance, where people have lost their jobs. These are products people rely on in difficult times.”
Some lawyers criticise the office for conservatism when it comes to offering remedies to people bringing complaints — they claim that in many cases, people might be better off going direct to the courts. But the cost of taking an action to the Ombudsman is far lower.
There is a €250,000 limit on the amount of compensation the Ombudsman can award. Mr Prasifka points out that this compares favourably with the UK, where the upper limit is £100,000 (€124,000).
“We offer the highest level. We also have a power of rectification — if someone is sold an investment product and it is now worthless, we can direct the return of the product to the provider, with the customer getting their money back.”
Mr Prasifka distinguishes his functions from those of a regulator. He cannot levy fines, but he does frequently pass on information to the financial regulator which can result in investigations and subsequent sanctions.
Changing peoples’ behaviour is no easy task.
Mis-selling continues to occur, if at a less hectic pace than during the boom.
The ombudsman is not a soft touch. There are significant hurdles barring the way to complainants, as is made clear by a perusal of cases heard.
By way of example, one insured householder was denied a payment by their insurer because they had repaired a damaged roof before letting the claims inspector on to the property. The ombudsman held for the insurance company.
The functions of the ombudsman are quasi-judicial, offering a means of dispute resolution away from the legal system.
In todays’ climate, with aggrieved would-be litigants ever more cash-strapped, the option of low-to-no-cost justice in a calm environment is one that increasing number of people appear to prefer.
Born: USA.
Education: Columbia University, New York.
Career: Practised as a lawyer in US before moving to Ireland in 1988.
1989-95: Lawyer, Wm Fry & Sons, Dublin.
1996-99: Member, Competition Authority.
1999-2006: Commissioner of Aviation Regulation.
2006-2010: Chair, Competition Authority.
2010 to date: Financial Services Ombudsman.
Married: Sunniva McDonagh. Three children. Brothers-in-law Philip and Bobby are ambassadors to Moscow and London.
Residence: Sandymount, Dublin 4.
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