FOOL'S EYE VIEW
Endowment Complaints: Don't Give Up!

By Jane Mack (TMFJane)
May 25, 2004

As many people with mortgage endowment policies will know these days, the only thing you're likely to be endowed with is a shortfall!

According to the Financial Services Authority, by the end of March, nearly half a million complaints had been made about endowment mis-selling and, to date, around £1 billion in compensation has been paid out or earmarked for payment to consumers.

Unfortunately, some firms are still trying to wriggle out of any responsibilities that they may have. One of my colleagues has recently been helping a mutual friend to make a mis-selling complaint. In his opinion, and he may, of course, be wrong (I'm not! Ed.), it's a clear-cut case of mis-selling. Yet, the response from the relevant firm to the initial letter of complaint was a prompt and immediate denial that the policy was mis-sold. Well, if they think my colleague's going to back off, they can think again! If the company refuses to investigate, he'll help our friend to refer the matter to the Financial Ombudsman Service.

The problem is that, when endowment policies were popular back in the Eighties and Nineties, they were so complicated that consumers often didn't realise that they had appallingly high charges. What's more, they paid such vast commissions that financial salespeople frequently recommended endowments without properly explaining the risks involved – namely, that investments can go down as well as up, etc.

As we all know, the chickens are now coming home to roost, and many policyholders – particularly those with mortgage endowments, which account for about four out of five of all plans (80%) - have received 'red' and 'amber' letters. These warn them that their policies are highly unlikely to produce the sum assured and that they may face a problem in the future. In other words, the amount of money you'll get when your policy matures probably won't be enough to pay off your mortgage, which could mean hardship for many homeowners.

One ruse that some firms have been using to stop mis-selling claims from proceeding further is to claim that policyholders are time-barred from complaining to the Financial Ombudsman. The normal 'final date' for making a complaint is three years after the policyholder receives a letter that states there is a high risk that the target sum will not be achieved (a 'red' re-projection letter).

Unfortunately, firms didn't exactly volunteer this information to consumers when they first starting sending out these letters two or three years ago. Hence, a couple of months ago, a group of influential MPs produced a report slating them for being so sly. They reckoned that a staggering three out of five policies (60%) have been mis-sold, so they felt that not informing consumers that they could complain within certain time limits was extremely unfair.

The ensuing furore resulted in the FSA 'encouraging' firms to go easy on the time limits - and, indeed, some firms have done so. However, some have not (surprise, surprise!), so the FSA has decided to change the rules for firms who want to stick to the strict three-year time-bar.

From next week, firms who wish to time-bar any complaints will have to make it absolutely clear to their policyholders that they have three years from their first 'red letter' to complain. And, even better for forgetful policyholders, they must also issue them with a final warning of the time bar at least six months before the deadline.

If you're wondering whether to complain, read the FSA's factsheet [pdf file] on how to go about it. The Consumers' Association has also set up a special website, called Endowment Action, which will help you decide whether you were mis-sold a policy. It also provides help with drafting a letter of complaint. The key questions to ask yourself are:

• Was the endowment suitable for you at the time because you indicated you had an appropriate attitude to risk?
• Did the salesperson imply that your policy was guaranteed to pay off the mortgage?

Bear in mind, you cannot claim simply on the basis that your endowment has performed badly, or because you are facing a shortfall. The real question is whether you were, or were not, aware of the risks when you took out the policy. You also have to be actually out of pocket, of course, since the compensation is designed to return you to the same position as you'd now be in if you'd taken out a repayment mortgage in the first place.

In summary, if you have good reason to believe you were mis-sold a policy, the important thing is not to give up the fight: take your complaint to the Financial Ombudsman.

More: The £37-Billion Mortgage Time Bomb | Acting On An Endowment Shortfall | Endowment Shortfalls - An Alternative Option.