Financial services complaints: when is a complaint not a complaint?

One would think that it wouldn’t need the might of the Court of Appeal to decide whether or not a customer has made a "complaint". But it has.

The Financial Conduct Authority (FCA) has detailed rules and guidance in its Handbook (Dispute Resolution: Complaints (DISP) prescribing how financial institutions must deal with complaints brought by their customers.

The FCA defines a complaint to be any oral or written expression of dissatisfaction, whether justified or not, from, or on behalf of, any person about the provision of, or failure to provide, a financial service, which:

• alleges that the complainant has suffered (or may suffer) financial loss, material distress or material inconvenience; and
• relates to an activity of that financial institution, which comes under the jurisdiction of the Financial Ombudsman Service.

In particular, the regulator's rules require the financial institution to investigate the complaint, and assess fairly, consistently and promptly whether the complaint should be upheld and what remedial action or redress may be appropriate. It then needs to explain its decision to the customer and undertake that remedial action or pay that redress.

In Davis v Lloyds Bank plc, the Court of Appeal – for the first time – has had to consider and decide whether the claimant had in fact made a complaint within the meaning of the FCA's rules. The Court of Appeal – agreeing with the court of first instance – decided that the claimant had not.

What was the case about?

The case arose from the widespread mis-selling of interest rate hedging products (IRHPs) by a number of banks in the noughties. The banks involved agreed with the FCA to review their sales of IRHPs to unsophisticated customers and, if they considered that those IRHPs had been mis-sold, to pay redress. Each bank's review was overseen by an independent reviewer, or "skilled person", who was required to review and approve the bank's determinations and report on the bank's conduct of the review to the FCA.

Mr Davis was one of the customers within the IRHP review conducted by Lloyds Bank. As part of that review, Lloyds offered Mr Davis compensation in respect of two IRHPs. Mr Davis accepted the offer in relation to the first IRHP, but rejected the offer in relation to the second IRHP. Mr Davis then claimed that he was entitled to bring an action for breach of statutory duty against Lloyds in relation to the second IRHP, not for the original alleged mis-selling (presumably on the basis that such a claim was time-barred), but for the bank's conduct of the review process.

Given that (we assume) Mr Davis was advised that case law had already established that the bank's conduct of the review process was not actionable in either contract or negligence, nor was it subject to the jurisdiction of the Financial Ombudsman Service, Mr Davis sought to argue that his correspondence with Lloyds in relation to the review process amounted to a "complaint" within the meaning of the FCA's DISP rules and that Lloyds' failure to consider that complaint in accordance with those rules and in accordance with the IRHP review terms agreed with the FCA amounted to a breach of statutory duty.

That formed the need for the court to consider whether a DISP complaint had been made by Mr Davis. If not, then Mr Davis' claim was bound to fail.

What did the Court of Appeal decide?

The Court of Appeal (and the court below) considered the entirety of Mr Davis' correspondence with the bank, spanning more than six months, as he participated in the IRHP review.

The Court of Appeal considered that the relevant test was whether a reasonable recipient of the communication or series of communications in the position of the bank, within the context in which the communications were made, would consider a complaint to have been made. Key to this was the fact that the entry into the review was not dependent upon Mr Davis making a complaint to Lloyds, but was as a result of an invitation to participate made by the bank, which Mr Davis accepted.

Ultimately, the Court of Appeal considered that references to comments that the customer would have been "better off" without the IRHP and that he had bought the "wrong product" were insufficient to amount to an expression of dissatisfaction: they were no more than statements of fact in hindsight as part of Mr Davis' acceptance of Lloyds' offer to review the sale of his IRHPs.

OC comment

This is the first case in which the Court of Appeal has had to consider whether or not a DISP complaint has been made. While the facts of the case are somewhat unusual, given the context of the IRHP review, this will give financial institutions some comfort that the rules do not – in effect – need them to consider any correspondence requesting or providing information, or making commentary on a customer's relationship, as amounting to a complaint requiring investigation in accordance with the FCA's DISP rules.

In particular, in coming to its decision, the Court of Appeal noted the importance for financial institutions to be able to identify when a complaint was made without a retrospective sift through of a mass of material, given the fact that various time periods under DISP are triggered by the making of a complaint.

Having said that, the definition of "complaint" in DISP is a broad one (and the Court of Appeal confirmed that it was possible for a complaint to be contained in more than one communication). Financial institutions would, therefore, be well-advised to interpret it widely. Otherwise, not only do they run the risk of court proceedings alleging a breach of statutory duty, but also the potential wrath of the FCA for being non-compliant with its rules.