FOS note on compensation for non-financial loss

[UK / FSA regulation, The Financial Ombudsman Service’s (FOS) ]

FOS note on compensation for non-financial loss – The Financial Ombudsman Service (FOS) has published a technical note which sets out the FOS’ approach when considering whether a business should be directed to pay compensation for any distress, inconvenience or other non-financial loss that has been caused to a consumer. Among other things, the note defines the meaning of “distress”, “inconvenience” and “pain and suffering”.

A copy of the technical note is available and shown below

http://www.financial-ombudsman.org.uk/publications/technical_notes/distress-and-inconvenience.htm

compensation for distress, inconvenience or other non-financial loss

what this note covers

This technical note sets out our current approach to considering – where we uphold a complaint wholly or partly – whether we will tell a business to pay compensation for any distress, inconvenience or other non-financial loss that it caused the consumer.

In addition to telling the financial business to pay compensation for financial loss or to put something right, we can also tell the business to pay costs and/or compensation for:

pain and suffering; or
damage to reputation; or
distress or inconvenience.

what is meant by “distress”, “inconvenience” and “pain and suffering”

Distress and inconvenience often go hand in hand. Where something has gone seriously wrong, it is quite common for the consumer to have experienced both inconvenience and distress.

Distress includes embarrassment, anxiety, disappointment and loss of expectation. The degree of distress involved can vary widely. On the one hand, it can be little more than a relatively minor annoyance. But in other cases, it can cause loss of sleep or even prolonged ill-health.

Inconvenience can include any expenditure of time and/or effort by the consumer that has resulted from the business’s conduct. Again, in relatively minor cases this may not amount to a significant burden. But it can include severe disruption and a great deal of wasted time.

Pain and suffering can be considered as more extreme forms of distress and inconvenience. They might arise, for example, in cases involving delays in arranging or paying for medical treatment under an insurance policy.

when does the ombudsman consider compensation for distress or inconvenience?
When we uphold the consumer’s complaint (wholly or partly), we consider whether it is appropriate to tell the business to pay compensation for distress or inconvenience caused by the business – even if the consumer did not specifically ask us to do so. Of course, that does not mean that we will tell the business to pay compensation in every case. Exceptionally, we may also tell the business to pay compensation for distress and inconvenience caused by the business in handling the complaint particularly poorly, even if we do not uphold the underlying complaint itself.

The courts usually award compensation for distress or inconvenience only where the object of the contract is to provide pleasure, relaxation or peace of mind. We usually consider compensation more widely, reflecting the legal requirement that we should work on the basis of “what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances”. We usually consider it fair that a financial business which has caused material distress or inconvenience or other non-financial loss should be required to pay reasonable compensation for that.

what about business customers?

We treat sole traders and partnerships the same as personal customers. But a limited company cannot, by definition, suffer distress or pain and suffering – although it can experience inconvenience. If the customer is the limited company, we cannot compensate the directors or shareholders personally.

was it the financial business’s fault?

Usually, the question of compensation only arises after a business, or its appointed agent, has breached a duty or been responsible for maladministration in its dealings with the consumer. “Maladministration” might include delays, clerical or procedural errors, rudeness, incorrect or inadequate explanations or simply a failure to respond to the consumer’s reasonable requests.

We will not automatically tell the business to pay compensation just because the consumer has suffered some distress or inconvenience – it has to have been caused by the financial business. For example:

Making an insurance claim following a death or injury is likely to be distressing – and many situations giving rise to insurance claims, such as car accidents or break-ins, can be inconvenient and distressing. That is not the financial business’s fault. Unless the business itself has caused distress or inconvenience through some error or failure of service, we would not be justified in telling the business to pay compensation.

An investor may suffer considerable anxiety if an investment does not produce the hoped-for return. However, assuming that the risks of the investment were properly explained to the investor at the outset, and that a suitable product has been administered correctly, we would not decide that the financial business was liable for the anxiety.

was the degree of distress or inconvenience material?

In many cases, even though there has been a certain amount of inconvenience and/or distress, it will not usually be appropriate for us to tell the business to pay compensation. We will not decide the business should pay if the degree of inconvenience or distress appears to be slight.

All of us suffer some inconvenience in our day-to-day lives and in our dealings with commercial organisations. For example, the fact that a phone line is busy or that a name is not spelt correctly can be annoying – but neither is likely to result in compensation (unless the problem persists).

how did the business handle the consumer’s complaint?

In addition to considering the subject matter of the complaint, it may also be relevant for us to look at the business’s subsequent actions in addressing the consumer’s concerns. Businesses are entitled to a reasonable opportunity to investigate complaints, but they are required to meet certain standards when doing so (see DISP 1 in the FSA handbook).

The fact that the consumer has had to make a complaint is unlikely to justify compensation for distress or inconvenience. But we are likely to consider awarding compensation if the business has handled the complaint badly – causing the consumer distress or inconvenience – whether or not we uphold the initial subject matter of the complaint. Handling a complaint badly can include:

excessive delay; or
requiring the consumer to take additional and unnecessary steps; or
refusing to settle a case at an early stage, despite knowing that the ombudsman had previously upheld similar complaints.

what factors are considered in deciding compensation for distress or inconvenience?

The aim of any compensation payment we tell the business to make is to compensate the consumer for the distress and inconvenience suffered. It is not intended to act as a fine, or as a general punishment of the business.

There are no hard-and-fast rules about the amounts that will be appropriate. It will depend on the circumstances of each individual case, which might include:

the severity of any distress;
the degree of any inconvenience;
the period over which the problem occurred;
the nature of the business’s actions (or inaction).

It may also be relevant to take into account the impact of the consumer’s own actions. For example:

delays in resolving a matter may have been caused partly by the consumer;
the consumer may not have taken reasonable steps to minimise the distress or inconvenience;
the consumer may have rejected a benefit that was available and that did not compromise their ability to pursue the complaint (for example, the business may have offered to undertake some remedial action but not all that the consumer wanted).
When we assess the level of compensation, we consider the consumer’s individual circumstances (including their state of health and age). We will consider the consumer’s own assessment of the degree of distress or inconvenience they have suffered, but this will not be decisive. Some consumers may be reluctant to discuss distressing matters and may understate the degree of distress or
inconvenience they have suffered, while others may overstate the position.

Our starting point in assessing compensation is the level of distress or inconvenience which actually resulted – even if the business did not foresee the degree of distress or inconvenience that its failure would cause.

So the same act of maladministration by a business could lead to very different levels of compensation depending on its consequences and the other circumstances of the case.

For example, if a business disclosed a consumer’s address to a third party – without the consumer’s permission – this may have little practical consequence. In those circumstances, modest compensation or even a simple apology might be appropriate.

But if the information was given out to the consumer’s estranged and sometimes violent partner, there may be very significant implications. This might justify significant compensation – particularly if the business knew, or should reasonably have known, about those implications.

allowance for consumer’s time

In awarding compensation, we sometimes make allowance for the time the consumer needed to spend to put things right – though not usually for the consumer’s time in dealing with us. This will normally be at a modest rate (around £50 to £100 a day, and not more than £10 per hour). A higher amount may be appropriate in the case of business complaints – but not usually as much as the business’s charge-out rate.

allowance for consumer’s expenses

We may also make allowance for expenses reasonably incurred – such as a reasonable estimate of the cost of phone calls and postage.

Where the business’s actions have denied the consumer access to a service, the cost of obtaining that service by another means (even where the consumer did not in fact do this) can sometimes be useful measure. For example, where a business’s actions denied the consumer the use of a car for a period, it will be relevant to consider the cost of hiring a car (or other forms of transport).

professional fees

Payments for distress or inconvenience do not cover other costs that arise from the business’s actions in handling the complaint. For example, in a few cases we may make a separate costs award for professional fees which a consumer needed to incur when bringing the complaint to us. However, such payments are likely to be rare, as it is not normally necessary for consumers to get help from professional advisers to bring a complaint.

how a business might damage a consumer’s reputation
A business may damage a consumer’s reputation in various ways. For example, damage may arise because the business’s actions resulted in:

a third party being misinformed about the consumer’s circumstances (for example, their creditworthiness); or
the improper disclosure of private information (for example, medical or other confidential records) which may be damaging to the consumer’s reputation or safety.

how we assess any compensation

When we assess whether we should tell the business to pay compensation for damage to reputation, and the amount of such compensation if appropriate, we apply similar considerations to those for distress and inconvenience payments. We are also likely to consider:

how widely the information was made available;
the nature of the information involved;
the impact the information had; and
the consumer’s previous reputation.
The amount of compensation for damage to reputation may be significant where specific damage can be identified. In addition to telling the business to pay compensation we may, where appropriate, consider requiring the business to minimise the impact of its earlier actions (by, for example, ensuring that credit-reference agency records are corrected).

making compensation payments

Where appropriate, compensation for distress, inconvenience or other non-financial loss will be identified separately from any compensation for financial loss. In most cases the compensation for distress, inconvenience or other non-financial loss is likely to be payable by the business direct to the consumer. Sometimes, however, if the consumer owes money to the business, the ombudsman may tell the business that the compensation payment should be set off against the debt.

scale of payments

Financial compensation will often be the only appropriate form of redress. But there will sometimes be cases where we are likely to consider some other form of action to be more suitable.

For example, we will sometimes tell the financial business to make an apology or to provide the consumer with an appropriate service which relates to the original problem.

Where the degree of distress, inconvenience or other non-financial loss is enough to mean compensation should be paid, the amount is likely to be modest. Most compensation is for less than £300 and in only a small number of exceptional cases does the compensation exceed £1,000. Generally, compensation for pain and suffering is likely to be higher than compensation for distress or inconvenience.

Below are some examples to show our general approach to telling businesses to pay compensation for distress and inconvenience and other non-financial losses. The examples are based on real-life cases – but are not precedents. Assessing the appropriate amount of compensation depends on the particular circumstances of each case.

Depending on the consumer’s circumstances, repeated or aggravated errors may cause more distress and/or inconvenience than an isolated error – as reflected in the example case studies below.

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May 2, 2012 < Back