Endowment firms pass the buck

LEADING banks and insurers are adding to customers' mortgage misery by failing to handle mis-sold mortgage endowment complaints adequately.

The Financial Ombudsman Service is being forced to deal with a soaring number of complaints because the major banks and insurance companies are failing to adhere to guidelines established three years ago.

The Financial Services Authority said some firms are turning down complaints on spurious grounds and are inconsistent in their decision making.

FSA managing director Clive Briault has written to insurance companies and financial advisers to remind them of their responsibility to customers.

He said: 'We are concerned, in particular, that the FOS is not only continuing to face a rising number of endowment complaints, but is also upholding a very high percentage of complaints from some firms, suggesting that these firms may not be handling complaints adequately.

'Firms should not manage their own caseloads by allowing an excessive number of complaints to flow through to the FOS.'

The letter follows one sent in April 2002 by then FSA managing director John Tiner which stressed the importance of the fair handling of complaints of people who believe they were mis-sold endowment policies.

The FSA said that although some progress has been made, the vast number of complaints are still being handled inadequately.

Consumer watchdog Which? said it was 'astounded' at insurers' attempts to 'wheedle their way out of paying compensation when it is due'.

Head of campaigns Louise Hanson said: 'The FSA should order these companies, under FSA supervision, to re-investigate all rejected complaints to determine whether they have acted reasonably.

'The FSA must continue to take these bad apples to task by immediately naming and shaming them, and then implementing significant fines where rules have been broken.'

The FSA admitted there is a handful of culprits but refused to name individual companies on confidentiality grounds.

Mortgage endowments are designed to pay off a home loan by investing in financial markets. Borrowers pay only the interest on a mortgage, while also investing in a with-profits fund from a life insurer. This is meant to deliver returns large enough to pay off the original loan.

Life insurers and banks sold these plans aggressively in the Eighties and Nineties, with a total of 11m people signing up. However, stock market falls and high charges on some products have left customers with an estimated £40bn shortfall in the money needed to repay loans.

In March 2004, Allied Dunbar was fined £725,000 and in December 2003 Friends Provident was fined £675,000, both for poor complaints handling.