We have recently been included in some communication between ourselves, a client and the FCA. We thought that this snippet of information from the email correspondence would help shed some light on the current thought process of the FCA.
A. “The IRHP review was set up in response to particular concerns about the way standalone IRHPs were sold to small businesses. Our agreement with the banks provides a framework for assessing whether, taking into account all the circumstances, it is reasonable to conclude that the customer could have understood the features and risks of the IRHP and if not, what the customer would likely have done had the sale been carried out in a compliant way.
Importantly, the IRHP review does not does not remove or replace customers' rights to make a complaint to their bank, refer their case to the Financial Ombudsman Service or pursue their claim through the courts.
We recognise that small customers who were sold IRHPs may have other concerns that they wish to raise with their bank. Generally, these other complaints will not be dealt with by the IRHP review (for example, your concerns about your client’s underlying loan and security arrangements). Customers, who have other complaints, should raise these through the banks’ usual complaints handling processes.
B. We understand your question to be; in principle is it possible for a redress offer in the IRHP review to involve a replacement IRHP that has a longer term than the related loan?
As you are aware, mis-matches between customers' loans terms and IRHPs terms were identified as a concern in our pilot findings 2 years ago. For this reason, where a mis-match is identified, it will as a matter of course be carefully considered in the IRHP review. In many cases, this has meant that the term of the IRHP has been reduced as part of the redress offer.
However, in a number of cases the banks have concluded that the customer would likely have done the same had the sale been carried out compliantly. For example, some customers understood the IRHP represented a separate contractual arrangement but chose a longer term to lock in an attractive rate or because the longer term rate was better than the short term rate. These customers would be fairly confident that their borrowing facilities would be extended (for example because the underlying revenue stream that supported the lending was considered to be secure) although they would understand that this was not guaranteed.
C. I believe this question is addressed by our response to part A of your question.
The banks are offering 8% simple interest to all customers to represent the opportunity cost to the customer of being deprived of their money (e.g. lost interest or profits). This amount is not necessarily the actual loss that customers suffered, but taking into account the economic environment over the last five years, for many customers this will represent a fair and reasonable proxy for their opportunity cost. Customers who believe that their loss exceeds 8% a year are able to submit a loss of profits claim.
In line with usual practice, if a customer accepts a redress offer made in the IRHP review, they agree to full and final settlement of their claims. The IRHP review scheme has been set up to provide a straightforward way for customers to resolve their complaints (about the sale of their IRHPs) with their banks, enabling fair and reasonable settlements. This would be the same for redress adjudications from the Financial Ombudsman Service.
Regarding the specific concerns about your client’s case, as you are aware the FCA is unable to intervene in or adjudicate in individual disputes between a customer and a regulated firm. To do this would require a detailed assessment of all relevant evidence, and this can often amount to several hundred documents. Further, you will be aware from the data we publish there are millions of individual complaints against regulated firms each year. Therefore it would not be possible for us to investigate individual claims.
The following steps are available to customers who have a complaint against a regulated firm;
1. Complain to the bank: the bank will review the complaint and respond, offering redress where appropriate;
2. Refer the complaint to the Financial Ombudsman Service: if the customer is an individual acting for purposes outside his trade, business or profession, or a 'micro enterprise' (an EU term covering certain smaller businesses) and if the customer is dissatisfied with the bank's response they may be able to refer their complaint to the Ombudsman; or
3. Pursue the case through the courts.
Whilst we are unable investigate the individual claim of your clients, we will carefully consider the information you have shared with us in the context of our wider work of overseeing the IRHP review and supervising the banks. However, you will be aware that we will not be able to report back to you or your client’s in relation to how we have used their information and what action we may have taken.
Financial Conduct Authority
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