Ombuds will handle cases involving disputes of fact or law and award compensation

National Treasury has proposed that the reformed National Financial Ombud (NFO) be able to hear complaints dealing with disputes of fact and disputes of law.

Treasury’s Policy Statement and Feedback Statement on its proposals for a comprehensive reform of the country’s ombud system address the issue of the NFO’s complaint-handling procedures, redress for financial loss, and whether ombuds and financial institutions should accept oral complaints.

During the consultation process on the World Bank Group’s recommendations for the reformed ombud system, some commentators objected to permitting NFO ombuds to deal with cases where there is a dispute of fact or law – these should go to court. Other commentators said the onus of proof should either be on the complainant or on the party making the assertion.

The Policy Statement said the Conduct of Financial Institutions Bill (COFI) will provide consistent definitions of “complaint” and “complainant” that will apply to both financial institutions and all ombud schemes.

Until the COFI definitions come into effect, the Ombud Council (OC) is considering the feasibility of greater alignment of these definitions across the existing ombud schemes, through OC rules.

COFI’s definition of “complaint” includes an allegation that a dispute of fact or law has arisen. The definition also includes complaints relating to “distress or substantial inconvenience”, so there would be a misalignment if the ombud schemes were unable to deal with such disputes, Treasury said.

“Internationally, other ombud schemes regularly resolve disputes of fact or law. In many cases, disputes of fact can be resolved by reference to contemporaneous documentation or other independent reports or materials. If necessary, ombud schemes can hold oral hearings.”

Treasury said it would not align with COFI’s definition of “complaint” if the ombud schemes could not deal with:

• disputes of fact – for example, what advice was given by the financial institution or what insured loss was suffered by a consumer; or
• disputes of law, bearing in mind that if an ombud’s decision applies the law incorrectly, it can be subject to reconsideration by the Financial Services Tribunal (FST), whose decision is ultimately subject to judicial review in the High Court.

“Excluding such cases from the financial ombud system would leave consumers with only the option of going to court, and an unscrupulous financial institution could frustrate a consumer’s access to the ombud system simply by raising some alleged dispute of fact or law,” the Feedback Statement said.

Option to decline complex matters

Nevertheless, appropriate provisions will be required, potentially through rules made or approved by the OC, to allow an NFO ombud to decline to deal with particularly complex matters that the ombud considers are better suited to the courts. This may include where there is:

• a material dispute of fact that cannot be resolved without an oral hearing and sworn evidence;
• a material dispute of law where the legal position is genuinely in doubt; or
• genuine uncertainty about causation in relation to consequential loss.

But Treasury said this should not be allowed to compromise access to the ombud system in cases where an ombud could reasonably be expected to make a decision on the available information. “Ombuds should not seek to avoid difficult cases that they can and should deal with.”

Measures should also be put in place to ensure that the ombud’s decision to decline to deal with a matter is communicated to a complainant promptly, to allow him or her reasonable time to consider other recourse options.

Treasury said the concept of “onus of proof” may be appropriate for a court hearing conducted on adversarial terms, where the court relies on parties of broadly equal resources to provide their own evidence and arguments. But it is not suitable for the ombud process, where the financial institution is likely to have the relevant records and superior resources, and the ombud actively investigates the case.

Where the relevant facts of a case are disputed, the ombud should decide (considering the available evidence) what is most likely to have happened.

Redress for financial loss

In considering redress for consequential loss, Treasury said the following will apply:

• The ombud will have to be satisfied, considering the available evidence, that the loss would not have arisen but for the financial institution’s unfair act or omission.
• Deciding this might sometimes require expert evidence. Where it does, the ombud will be able to seek expert evidence before making a decision.
• If the consequential loss would not have arisen but for the financial institution’s unfair act or omission, it would be too onerous for the innocent complainant to have to bear it.
• If the contract between the customer and financial institution sought to exclude liability for consequential loss, the ombud will have to decide whether it had been validly and fairly excluded.

Pending the establishment of the reformed ombud system, the OC is considering making rules requiring all existing ombud schemes to grant redress for distress or inconvenience.

Treasury said it will not object to a maximum amount (approved by the OC) that can be awarded for distress or inconvenience.

Tribunal’s processes should be streamlined

Treasury is proposing that certain decisions of both the NFO and the Retirement Funds Ombud (RFO) should be subject to the FST.

It said the Tribunal’s rules should be amended to streamline or simplify current FST processes – at least in respect of NFO or RFO matters – “to minimise potential consumer disadvantages caused by formalities”.

Subject to further consultation on the details through an Omnibus Bill, Treasury’s policy position on reconsideration of decisions is as follows:

Either party should be able to apply to the FST for reconsideration, limited to the following NFO and RFO decisions:

• an ombud’s ruling that a case is out of jurisdiction;
• an ombud’s dismissal of a complaint without further consideration; or
• an ombud’s determination.

On receiving an application for reconsideration, the Tribunal may:

• dismiss the application summarily;
• hear and dismiss the application;
• hear the application and set aside the decision, sending the matter back to the ombud scheme for reconsideration (with or without directions); or
• hear the application and, in exceptional cases, substitute or vary the decision or correct a defect resulting from the decision.

In considering summary dismissal, the Tribunal will take into account whether:

• the matter is within the FST’s jurisdiction;
• the FST is likely to reach a different conclusion from the ombud;
• there is prima facie evidence of a material legal or procedural error;
• it is in the interest of justice to do so; or
• the case has wider implications for financial consumers or financial institutions generally.

 

Ombuds and financial institutions must accept oral complaints …

COFI’s definition of “complaint” includes oral complaints.

Treasury said many commentators seem to have assumed the WBG recommended that only the ombud schemes should have to accept oral complaints. In fact, the recommendation also applied to complaints presented to financial institutions, “which should be the first port of call when putting things right for unhappy financial customers”. Therefore, the challenges surrounding recording, transcribing, and (where necessary) translating complaints are faced by financial institutions and ombud schemes.

It said accepting complaints orally raises “some practical issues”, but these have already been tackled by the six existing financial ombud schemes that accept oral complaints.

“In view of the poor levels of literacy in areas of South Africa, requiring all complaints to be made in writing would make the complaint-handling systems of financial institutions and the ombud system inaccessible to significant numbers of consumers who would be left without redress,” the Feedback Statement said.

Pending COFI, the OC is considering introducing the requirement to accept oral complaints through OC rules, while recognising the need to deal with the practical implications for ombud schemes and financial institutions, including appropriate mechanisms for reducing orally submitted complaints to a written or other retrievable form, it said.

 

… and in all the country’s official languages

In its report, the WBG said financial products are mainly promoted in English, but they are also promoted in other indigenous languages. It would be wrong in principle for a financial institution to promote its products in a local language but refuse to consider a complaint made in that language.

Only 8.1% of the population speaks English at home and only 16.6% speaks English outside the home.

The WBG said not allowing consumers to submit a complaint in the official language with which they are familiar would make the complaint-handling systems of financial institutions and the ombud system inaccessible to significant numbers of consumers, who would be left without redress.

Treasury said it agrees in principle with the WBG, but the practical implications for schemes and financial institutions will need to be considered in phasing in such a requirement.

Other legislative approaches to language use, including section 63 of the National Credit Act (NCA) will be considered, as well as the position of sign language, which has recently been recognised as a 12th official language, Treasury said.

Section 63 of the NCA provides that, in relation to prescribed information in the credit sector, a consumer has a right to receive any document in an official language that the consumer reads or understands, to the extent that is reasonable having regard to usage, practicality, expense, regional circumstances, and the balance of the needs and preferences of the population ordinarily served by the person required to deliver that document.