How The Financial Ombudsman Protects Your P2P Lending

I have a lot of professional and some personal experience with the Financial Ombudsman Service (FOS), all of it good. This powerful and excellent service has helped millions of people to win compensation.

The FOS handles complaints about financial businesses that are regulated by the Financial Conduct Authority. This includes UK-based P2P lending companies as well as financial advisors, in the event you use one for P2P lending.

The ombudsman is allowed to consider what's fair and reasonable – not just what the law strictly says. Yet it does strive to make consistent decisions.

What could lenders get from the ombudsman?

If you make a complaint, it's looked at by a case handler at the Financial Ombudsman Service.

If your complaint is unsuccessful, there's no cost to you and you can still, if you want, take the matter to court.

If your complaint is successful, the ombudsman can order the regulated business to repay you for your losses.

it might also order the business to pay you interest, which will be based on the Bank of England's core rate (the “base rate”) plus one percentage point. So if the base rate is 4%, you'd get 5%.

If the business doesn't pay up within 28 days, it will need to pay 8% interest per year on top until it does.

The maximum you could be awarded is £455,000, although if you're complaining late about something that happened many years ago the award could be lower..

The best bit is that the regulated business must accept the decision and pay you. It has no way to object or get the decision overturned. Now that's a powerful ally for small investors!

How much does the ombudsman cost?

The Financial Ombudsman Service is free for lenders to use.

A fee is charged to every regulated firm based on the number of complaints the ombudsman received about it. UK-based P2P lending companies are all regulated by the FCA, so are covered under the ombudsman scheme. As are financial advisors.

What will the ombudsman do if you lose money in some P2P loans or accounts?

If you invest money and simply lose some of it, the ombudsman won't compensate you. That was the risk you took when lending or investing.

The ombudsman has never awarded money simply because an investment has turned out badly or because the people running the investments weren't quite as good at it as they thought they were. That applies to all investments.

However, if you were mis-sold an investment the Ombudsman can make an award in your favour. “Mis-selling” usually means you were personally advised to buy an investment that was completely inappropriate for you, your needs, or the level of risk that you said you wanted to take.

What sort of cases is the ombudsman most likely to award in your favour?

If you complain about a financial advisor, I think this is most likely going to be about mis-sold investments. Financial advisors are both advisors and salespeople, sometimes putting them in something of an awkward position.

For P2P lending companies themselves, your complaint is not as likely to be directly related to the quality of the loans or your lending results.

Examples are when its terms and conditions are unfair or it has just imposed new unfair terms.

Or, it's slow at giving you your cash back even though it is not currently out on loan, you might get compensation. This is more likely if, due to their lack of care, you face penalties or losses because you're unable to pay your costs elsewhere.

Another example is if the P2P lending company continued to charge you for its services, despite the fact you were just waiting for your money to close your account. In such cases, the ombudsman has previously forced payouts in customers' favour.

Further reading

How P2P Lending Providers Stack Up On Ombudsman Complaints.

Read about what the Ombudsman says about sophisticated investors in Do “Sophisticated Investors” Have Less Legal Protection?

Visit the Financial Ombudsman's website to find out how to complain to the Financial Ombudsman Service.