How The Financial Ombudsman Protects Your P2P lending
I have a lot of professional and some personal experience with the Financial Ombudsman Service, all of it good. This powerful and excellent service has helped millions of people. It 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.
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. In some cases, it can order the business to pay you additional compensation too. It can also ask the business to pay interest of 8% on top.
The maximum you could be awarded is £350,000, with a limit of £160,000 if the complaint refers to something that happened before 1st April 2019.
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!
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.
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 more likely to be an everyday complaint that isn't related to the quality of the loans.
If, for example, 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. Or 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. Something similar to this has happened to me with a share account before. The ombudsman forced a payout in my favour.
Read about what the Ombudsman says about sophisticated investors in Do “Sophisticated Investors” Have Less Legal Protection?