FSA to relax time bars for mortgage endowment complaints

The Financial Ombudsman Service is not normally able to consider complaints that are referred to it more than three years after a complainant who was mis-sold first became aware that they had suffered a loss (the so-called "time bar" rule). For endowments, this could be considered to be the date on which the policyholder had received his or her first re-projection letter from the policy provider. Some policyholders had received their first letters in early 2000, meaning that the time bar could take effect for them early next year.

The FSA has been in discussions with insurers during the year and has proposed rule changes to clarify the position for consumers.

Specifically:

• a red (and not an amber or green) re-projection letter is to be regarded as notice of the potential for loss needed for time to start running; and

• customers will not be held "out of time" until 6 months after a second red letter is sent, if this gives the consumer more than three years after the first, to avoid the risk that a single red letter could cause someone to be held out of time.

John Tiner, FSA managing director, commented:

"We have acted here on behalf of policyholders, without causing unjustified alarm or panicking consumers. These proposals will clarify the position for those that might have been affected and ensure that policyholders with complaints have enough time to pursue them."

At this stage, the FSA sees no need to make other changes, e.g. to extend the 3-year period, but will keep this under review.

Notes for editors

1. These proposals will be out for consultation by the end of the year. It is planned to bring them into force early in the New Year, before anyone could be at risk that the first red letters had already caused time to expire.

2. The FSA has already put in place, with the insurance industry, arrangements for endowment providers to report to their customers regularly on whether their policies are on track to pay off their mortgages.

   Under this system:

   • a green letter confirms that an endowment needs to grow by no more than 6% annually to keep on track;

   • an amber letter indicates a possible shortfall; and

   • a red letter indicates a likely shortfall.

3. A red letter is not enough to start time running on its own. A claim can only be made if both:

   • the policy was mis-sold at outset (e.g. It was unsuitable for the customer, or the salesperson indicated that it was guaranteed to pay off the mortgage); and

   • there was potential for financial damage as a result of that mis-sale (rather than due to poor market performance since).

4. These changes only govern the possibility that time starts to run because of a formal reprojection letter as part of the industry-wide scheme. Time can also start to run in other cases where the customer becomes aware that he had a claim.

5. Under the rules, as they stand, the Ombudsman is able to extend time periods where a firm is slow in dealing with complaints.

6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the appropriate degree of protection of consumers; and fighting financial crime.

7. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.