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A Brief Introduction to The Federal Civil False Claims Act complaint definition fca

A Brief Introduction to The Federal Civil False Claims Act

I. WHY IS FAMILIARITY WITH THE FALSE CLAIMS ACT SO IMPORTANT?

The False Claims Act (FCA), 31 U.S.C. Sections 3729-3733, has become the primary enforcement mechanism employed by the government in to combat healthcare fraud, defense industry contractor fraud, and fraud in any other government-funded program. The qui tam or whistleblower provisions (Section 3730) recently have assumed significant importance, especially in the healthcare area. Enhanced powers vested in the Department of Justice through the provision for Civil Investigative Demands (CIDs) are frequently employed to secure documentation and testimony prior to any complaint being served. Moreover, given the increasing incidence of compliance plans, it is essential for any compliance officer to be conversant with the general provisions of the FCA.

II. DEFENDING FALSE CLAIMS ACT/QUI TAM ACTIONS

See article titled, Some Strategies for Defending Healthcare Fraud Qui Tam Cases .

III. SECTION 3729: WHAT ARE "FALSE CLAIMS" UNDER THE FCA?

Section 3729 is the core provision of the FCA. It defines false claims liability, establishes the Act's scienter requirement, defines "claims," and contains a voluntary disclosure provision. A. Liability The Act provides: Liability: Any person who -- a. "knowingly" presents, or causes to be presented to the United States a false or fraudulent claim for payment or approval (Section 3729(a)(1)) or b. "knowingly" makes, uses, or causes to be made or used a false record or statement to get a false or fraudulent claim paid or approved (Section 3729(a)(2)) or c. conspires to defraud the government by getting a false or fraudulent claim allowed or paid (Section 3729(a)(3)) or d. "knowingly" makes, uses or causes to be made or used a false record or statement to conceal, avoid or decrease an obligation to pay or transmit money or property to the United States (Section 3729(a)(7)) [the so-called "reverse false claim"] is liable for treble damages and penalties of $5,000-$10,000 for each false claim submitted, unless the person satisfies the "volunteer" provisions of the Act, in which case damages may be assessed at not less than double (Section 3729(a)(7)(A)-(C)).

There are four principal types of false claims that the FCA seeks to foreclose. First, one may submit a claim to the government which, on its face, contains false or fraudulent information--the "classic" false claim. This is addressed in Section 3729(a)(1).

An example would be billing Medicare for having provided laboratory tests which were never actually performed. Second, one may utilize a false document in order to get a false or fraudulent claim paid or approved. For example, if a defense contractor submits a written certification declaring that certain tests were performed on equipment manufactured for the Army, but in fact those tests were never performed, and the certification is relied upon as part of the payment process, then a violation of Section 3729(a)(2) has occurred.

Frequently, counsel not familiar with the FCA will mix-up the two sections. The distinction between Sections 3729(a)(1) and (a)(2) of the FCA is well illustrated by Jana v. United States, 34 Fed. Cl. 447 (1995). There, the government's counterclaim alleged that false progress payments had been submitted "substantiated by individual daily time cards" that were fraudulent. Id. at 448. The time cards were actionable under Section (a)(2). "The difference between Section 3729 (a)(1) and Section 3729(a)(2) is that the former imposes liability for presenting a false claim, while the latter imposes liability for using a false record or statement to get a false claim paid." Id. at 449. Third, the FCA addresses conspiracies to engage in any of the acts forbidden by the Act in Section 3729(a)(3).

Finally, Section 3729(a)(7), contains the so-called "reverse false claim" provision. The basic purpose of this provision is to address situations where an individual or entity has already received funds or material from the government which ought to be returned. An example would be a situation where a government contractor falsely accounts for the value of government property in its possession, to avoid having to compensate the government. See, e.g., United States v. PEMCOAEROPLEX, INC., 195 F.3d 1234 (11th Cir. 1999).

Penalty Provisions

Section 3729(a) contains the awesome penalty provisions of the FCA. As a starter, the government is entitled to three times the amount of its loss (also known as "single damages"). However, the more severe penalty provision is that which addresses penalties: between $5,000 and $10,000 for each false claim submitted and/or false document used to get a false claim approved for payment. In the healthcare fraud area, it should be noted that the civil penalties apply to each request to the Department of Health and Human Services for reimbursement, causing a defendant's potential exposure to mount very quickly.

As a result, for every 100 false claims a government contractor or healthcare provider submits, it can face liability of one million dollars or more in penalties alone. Because of the large number of claims generated by healthcare providers, the penalty provisions of the Act play a more important role in defining total provider liability than does the treble damages provision. Generally speaking, for defense contractors, the opposite is true--the damages provision is predominant.

Voluntary Disclosure Provision

It is frequently overlooked that the FCA contains its own voluntary disclosure provision at Section 3729(a)(7)(A)-(C). Please note that all three provisions therein specified must be satisfied -- an extremely difficult undertaking when negotiating with the Department of Justice.

Compliance officers, in particular, should become conversant with this provision which can result in some substantial benefit if properly invoked. Most importantly, in recognition of cooperation with the government, a court may assess "not less than 2 times the amount of damages which the Government sustains because of the act of the person." Notice that this language suggests that no penalties will be assessed. In actuality, this section is never applied by courts; its real significance is in negotiations with DOJ where it can afford an effective argument for reducing ambitious government damage demands.

Definition of "Knowing" (Section 3729(b))

In 1986, the False Claims Act was substantially amended to improve and enhance the government's ability to recover federal funds lost through fraud. One important change was the clarified definition of "knowing" found at Section 3729(b). The amended Act now mandates that a person (including any healthcare provider or contractor) can be held liable if it submits or causes to be submitted3 a false or fraudulent claim or a false statement in support of a claim: a. with actual knowledge that it is false (Section 3729(b)(1)); b. in deliberate ignorance of the truth or falsity of the information (Section 3729(b)(2)); c. or in reckless disregard of the truth or falsity of the information (Section 3729(b)(3)).

Moreover, Congress clarified that no proof of specific intent to defraud is required. (Section 3729(b)(3)). One of the most grievous mistakes counsel unfamiliar with the FCA make is to equate the scienter requirement of the FCA with criminal fraud statutes. Not only does the statute state on its face "no specific intent" is necessary, it offers three varying definitions of "knowing" which do determine the scienter requirement.

The first definition, actual knowledge (Section 3729(b)(1)), is entirely straightforward. If a false claim is submitted, or a false or fraudulent document submitted, and the submission is from a person who knows the document or claim is false or fraudulent, then a knowing submission has occurred. The next two definitions are somewhat more illusive. A good illustration of acting in deliberate ignorance of the truth or falsity of information (Section b(2)) is found where, for example, a physician practice does not properly supervise or train its billing staff, so that inappropriate claims are submitted.

The practice cannot avoid liability by asserting that it relied upon the billers if it could have exercised appropriate supervision over them; the same is true of independent billing companies. This provision is sometimes said to deal with the "ostrich with its head in the sand" problem.

Put simply, you cannot look the other way and thereby avoid FCA liability. The third definition, acting in "reckless disregard" is very difficult to assess. Probably, this provision relates to negligence of a very high category. An example might be utilizing a computer billing program for Medicare billing that has not been updated for five years to see, nonetheless, how many claims would be paid. The important point to bear in mind is that nobody quite knows what the second and third categories of "knowing" mean and how a court would interpret these provisions.

Therefore, compliance officers, in particular, should act upon the assumption that careless or mistaken claims can serve as the basis for an FCA prosecution.

What is a "Claim" under the FCA (Section 3729(c))?

It is important remember that the definition of "claim" is broadly specified in the act: any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is required or demanded, or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded [emphasis added]. Therefore, false claims or fraudulent documents do not have to be submitted to the government directly; the provision covers virtually anything of value, and the Act follows the flow of government money or property. The safest rule of thumb is that if the money or property at issue originated with the government, the FCA will reach it.

IV. THE QUI TAM OR WHISTLEBLOWER PROVISIONS OF THE FCA

In 1986 the qui tam, or private citizen suit provisions of the False Claims Act (found at 31 U.S.C. Section 3730), was substantially strengthened and liberalized to provide greater incentives for private individuals (designated as "relators") to come forward and report fraud against the government. Any violation of the Act may be brought by a private person in the name of the United States--the cases are captioned U.S. ex rel. [relator] v. Defendant--on behalf of the government as a qui tam action. Particularly in the healthcare area, qui tam actions alleging fraud increasingly are becoming the predominant source of the government's actions under the Act.

The key provisions of Section 3730 are:

Section 3730(b)--Filing the Complaint

Section 3730(b)(1) states the basic authority of a relator to act on behalf of the United States. Please note that the relator cannot dismiss an action on its own; the Attorney General must consent. Section 3730(b)(2) specifies the procedures that must be followed in terms of serving the government with the qui tam complaint. Briefly, the relator files a complaint under seal, serves the Attorney General and the appropriate U.S. Attorney, and, in addition, furnishes the government with a statement of material evidence in support of the complaint's allegations of fraud. The government has an initial 60 days to investigate the allegations.

However, pursuant to Section 3730(b)(3), the Department of Justice may (and almost always does) request extensions of time. Eventually, the government must either "intervene" and litigate the case, or "decline" to do so and let the relator pursue it. Section 3730(b)(4). Once a complaint has been filed, "no person other than the government may intervene or bring a related action based on the facts underlying the pending action (the so-called "first to file" rule). Section 3730(b)(5); see U.S. ex rel. Erickson v. Am. Inst. of Biological Sciences, 716 F. Supp. 908 (E.D. Va. 1989).

Section 3730(c)--Rights of Relator and Government

This section states the respective rights of the relator and the government. The government may dismiss an action without the consent of the relator as long as the relator can contest the issue in a hearing. Section 3730(c)(2)(A). Similarly, the government may settle the action with the defendant(s) even if the relator opposes the resolution, as long as the district court affords the opportunity for a hearing on the merits of the proposed settlement. Section 3730(c)(2)(B). If the government declines participation, the relator may conduct the litigation on its own. Section 3730(b)(4)(B).

Section 3730(d)--Financial Consequences

The relator is entitled to between 15 and 30 percent of the recovery/ settlement/judgment, depending on whether the government intervenes and conducts the litigation and other factors (less than 15 percent under some circumstances). Section 3730(d)(1) & (2). However, there are some substantial statutory limitations on a relator's potential recovery. If the relator participated in the underlying actions giving rise to the claim, the relator's share may be reduced or eliminated in its entirety by the district court. Section 3730(d)(3). If the government declines participation, and the defendant is successful, it may be entitled to "reasonable attorneys' fees and expenses" pursuant to Section 3730(d)(4). See article titled, Recovering Attorney's Fees and Expenses from Unsuccessful Relators in Qui Tam Cases Pursuant to Section 3730(D)(4) of the False Claims Act.

A particularly critical section of Section 3730(d)(1) is that provision which specifies that the relator "shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys' fees and costs. All such expenses, fees, and costs shall be awarded against the defendant" [emphasis added]. Unlike the relator's recovery, which is deducted from the government's total recovery, the relator's expenses and costs are separately assessed against the defendant. A common mistake of inexperienced counsel is to either (a) assume that any such award is also subtracted from the settlement or judgment paid the government, or (b) assume that the issue of attorney's fees is governed by the prevailing "American rule" which usually forecloses such an award.

Consequently, no settlement agreement should be entered into with the government until the issue of how much the relator will be paid under this provision is determined. This is because awards under this provision can prove to be enormous; by contrast, defendants have maximum leverage when negotiating the underlying settlement and can utilize the government's desire to settle to restrain overly ambitious relators seeking exorbitant compensation under this provision. Otherwise, a district judge will decide what are the relator's "reasonable" expenses in a proceeding which itself can prove exceedingly expensive to defend.

Section 3730(e)--Jurisdictional Foreclosure; Public Disclosure Bar and Original Source

This section is of crucial importance to defendants in qui tam actions. This is because Section 3730(e) contains jurisdictional provisions that limit the ability of relators to institute actions. For example, Section 3730(e)(3) forecloses any action which "is based upon allegations or transactions which are the subject of a civil suit or an administrative civil monetary penalty proceeding in which the Government is already a party."

This provision is rather straightforward; not so for other components of the section. The most important jurisdictional bar relied upon by defendants to terminate qui tam litigation is found in Section 3730(e)(4)--the so-called "public disclosure bar." The reported cases construing this section run into the hundreds--stark tribute to its potent power to terminate qui tam suits in their tracks. This is because unless a relator can satisfy Section 3730(e)(4), its action is jurisdictionally barred.

An extensive analysis of this section is beyond the scope of this essay; however, every unfortunate recipient of a qui tam complaint should initially direct their counsel to this provision. The best starting point to understand this concept is the language of section (e)(4)(A) itself: No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional administrative, or Government Accounting Office report, hearing, audit or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information [emphasis added].

Simply put, if the allegations or transactions upon which the qui tam complaint is based have been publicly disclosed in judicial proceedings, in government reports or audits/investigations or in the media, a "public disclosure" has taken place. The intent of Congress here is explicit.

What is a Public Disclosure?

The qui tam provision of the FCA was enacted by Congress in an effort to financially reward individuals who come forward with information about fraud against the government. The legislative history of the FCA suggests the legislative purpose was to use the public disclosure jurisdictional bar to ensure that plaintiffs who have not significantly contributed to the exposure of the alleged fraud would not share in the bounty. United States ex rel. Devlin v. California, 84 F.3d 358, 362 (9th Cir.), cert. denied, 519 U.S. 949 (1996). The public disclosure bar and the original source exception, therefore, embody the legislative effort to strike a balance between encouraging whistleblowing and discouraging so-called parasitic suits.

In order to qualify, a plaintiff "must be a true whistleblower. [A relator] is unable to pursue the suit and collect a percentage of the recovery if the case is based upon information that has previously been public or if the claim has already been filed by another." United States ex rel. McKenzie v. Bellsouth Telecommunications, 123 F.3d 935, 939 (6th Cir. 1997) (quoting United States ex rel. Taxpayers Against Fraud v. General Elec., 41 F.3d 1032, 1035 (6th Cir. 1994)), cert. denied, 522 U.S. 1077 (1998).

Put differently, whistleblowers sound an alarm while "second toots" merely mimic allegations already exposed. Wang ex rel. United States v. FMC Corp., 975 F.2d 1412, 1419 (9th Cir. 1992) ("Qui tam suits are meant to encourage insiders privy to a fraud on the government to blow the whistle on the crime. In such a scheme, there is little point in rewarding a second toot.")

Relators must not be "opportunistic late-comers who add nothing to the exposure of the [alleged] fraud." See United States ex rel. Rabushka v. Crane Co., 40 F.3d 1509, 1511 (8th Cir. 1994) (discussing the purpose of the FCA), cert. denied, 515 U.S. 1142 (1995). An allegation of fraud has been publicly disclosed when it is in the public domain. United States ex rel. Dick v. Long Island Lighting Co., 912 F.2d 13, 18 (2d Cir. 1990) (discussing the meaning of "public disclosure" in the context of the FCA). Stated differently, "potential accessibility [of the information] by those not party to the fraud [is] the touchstone of public disclosure." United States ex rel. Doe v. John Doe Corp., 960 F.2d 318, 322 (2d Cir. 1992) (citing United States ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1161 (3d Cir. 1991).

Additionally, where the allegations are not just potentially accessible to the public but were actually divulged to "strangers to the fraud," the requirements of a public disclosure have been met. United States ex rel. Doe v. John Doe Corp., 960 F.2d at 322. When a relator's complaint "merely echoes publicly disclosed, allegedly fraudulent transactions that already enable the government to adequately investigate the case and to make a decision whether to prosecute, the public disclosure bar applies." United States ex rel. Findley v. FPC-Boron Employees' Club, 105 F.3d 675, 688 (D.C. Cir.), cert. denied, 118 S. Ct. 172 (1997).

In fact, the jurisdictional bar may apply even if the public disclosure and the qui tam complaint are not identical. Some courts have held that the public disclosure need only raise an inference of fraud. See United States ex rel. Springfield Terminal, 14 F.3d at 654. Other courts have required that the publicly disclosed allegations or transactions "encompass the essential element of the fraud alleged." United States ex rel. Rabushka, 40 F.3d at 1514 . Clearly, though, where the qui tam plaintiff's complaint mirrors or "substantially repeat[s] what the public already knows," the jurisdictional bar is triggered. See United States ex rel. Findley, 105 F.3d at 687. A qui tam plaintiff's complaint is "based upon" a public disclosure if it merely repeats what the public already knows via the public disclosure. See United States ex rel. Biddle v. Board of Trustees of the Leland Stanford, Jr. Univ., 161 F.3d 533, 537-40 (9th Cir. 1998), cert. denied, 119 S. Ct. 1457 (1999); see also United States ex rel. Findley, 105 F.3d at 683 (finding that the purpose and legislative history of the FCA support a construction of "based upon" as requiring only that the qui tam plaintiff's allegation parrot information in the public domain.) A complaint is "based upon" a public disclosure even if the qui tam plaintiff did not derive his knowledge of the alleged fraud from the public disclosure. See United States ex rel. Precision Co. v. Koch Indus., Inc, 971 F.2d 548, 552 (10th Cir. 1992), cert. denied, 507 U.S. 951 (1993); United States ex rel. Doe v. John Doe Corp., 960 F.2d at 324; United States ex rel. Kreindler & Kreindler v. United Technologies Corp., 985 F.2d 1148, 1158 (2d Cir. 1993); But see United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1348 (4th Cir.), cert. denied, 513 U.S. 928 (1994). In fact, several courts have held that a qui tam plaintiff's complaint can be "based upon" a public disclosure of which the plaintiff had no knowledge. See United States ex rel. Findley, 105 F.3d at 683.

Who is an Original Source?

Once the complaint is challenged as being based upon publicly disclosed information (such as in a motion to dismiss under FRCP 12(b)(1)), the relator's only device to survive is to demonstrate that she qualifies as an "original source, as defined in Section (e)(4)(B): For purposes of this paragraph, "original source" means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government ustsvxlk. moncler children's size guidebefore filing an action under this section which is based on the information [emphasis added]. The litigation interpreting the "original source" provision has, as can be surmised from the language of the pertinent section, involved several key concepts.

A vital threshold concept is what constitutes direct knowledge? For example, must the relator have actually been involved or had first-hand knowledge of the pertinent events, or even actually witnessed those events; or will indirect knowledge (such as hearsay) suffice? A related issue is whether the relator must have had direct knowledge of the information that was released into the public domain. See Findley, 105 F.3d at 690. A second hotly-debated issue is how one establishes "independent knowledge."

Interpretative case authority suggests that this term means (a) knowledge gained independently of the public disclosure, or (b) knowledge obtained independently of the government. One interesting issue is whether if any of relator's knowledge is derived from information available in the public domain, that triggers the entire issue of whether the relator is an original source. In all the fuss over the original source provision, an important procedural element is often lost in the shuffle.

Section (e)(4)(B) also mandates that a prospective relator must "voluntarily" disclose his information to the government before filing his complaint. In contrast to other elements of the original source provision, this requirement has undergone limited interpretation. Interesting issues nonetheless present themselves. What if the government contacts a potential relator before the relator has contacted the government? What is a public disclosure takes place prior to the relator contacting the government, which has by then derived some knowledge at least of the allegations from the public disclosure.

If the prospective relator is a government employee; can he ever "voluntarily" disclose information? Finally, one of the most intriguing issues is whether a relator's status as an original source survives if despite meeting the direct and independent knowledge thresholds, he has no connection with the public disclosure that occurs.
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moncler jacket womens sale Complaint handling changes take effect today - 30 June 2016 United Kingdom Litigation and dispute management Financial institutions - Retail finance 30-06-2016

What is changing, what difference will it make and what other developments lie ahead?

Today is the day that the key complaint handling changes come into effect following the publication in July 2015 by the Financial Conduct Authority (FCA) of Policy Statement 15/19 on Improving Complaint Handling.  The changes follow on from the FCA’s thematic review into Complaint Handling in 2014.

Complaint handling remains high on the FCA’s agenda because ensuring that firms treat customers fairly is at the heart of its consumer protection agenda and complaint handling is a key barometer of the culture of a firm. The FCA hopes that the new rules will benefit consumers who wish to complain by ensuring complaints are handled more quickly, easily and transparently than at present.

Key changes

The changes coming into force today are:

extending the ‘next business day rule’, where firms are permitted to handle complaints less formally and without sending a final response letter, to the close of three business days after the date of receipt firms must report all complaints, including those handled by the close of three business days after the firm receives them raising consumer awareness of FOS, by firms sending a ‘summary resolution communication’ following the resolution of complaints handled by the close of the third business day after receipt firms must complete a new ‘complaints return’ which requires firms to send data to the FCA twice a year on the number of complaints they receive.

The changes affect all FCA-regulated firms within the scope of the Compulsory Jurisdiction of FOS and across all financial services sectors.

Implications

At present, complaints are only reported if they are not resolved informally before the end of the next business day after they are received.  The new rules require all complaints to be reported. This is likely to mean there will be a spike in levels of complaints reported when the FCA publishes data for the second half of 2016 (H2 2016), expected to be published in April 2017.  Firms are also likely to want to contextualise the new data when publishing their own data as consumers may struggle to understand the reason for increases unless it is well explained.

Since the changes were announced, this has brought renewed focus on the definition of complaint.  The key issue here is the wording, “the complainant has suffered (or may suffer) financial loss, material distress or material inconvenience”.  There is no definition of materiality and no current plans for FCA to clarify how this should be interpreted. The addition of minor complaints that are quickly resolved having to be reported brings this in to the spotlight.  Some good work has been done by industry bodies in recent months to try and achieve some consistency of approach.  This is helpful as the usefulness and accuracy of complaints data will depend on a sensible and consistent interpretation of this definition.

There is understandable concern from firms about the practical implications of the new ‘summary resolution communication’ (SRC).  Given more complaints should now be resolved at the early informal stage, the new communication may lead to an increase in cases going to FOS which might otherwise be resolved by the firm through its more formal 8 week process used for handling other complaints not resolved at this early stage. 

The answer to this may be that firms will need to be confident that the proposed solution fully resolves the complaint before seeking to conclude it in the informal three day period.  We understand that several firms have undertaken trials using the new SRC in co-operation with FOS and these have been helpful.  The sense is that a well-managed complaints process should not result in material changes to the numbers of complaints being escalated to FOS. 

Other developments

A series of publications relevant to complaint handling over the past few months give an insight into likely future developments.

National Audit Office Report (February 2016)

This was focused on how the bodies involved co-ordinate their activities with respect to mis-selling and the costs involved.  It concluded that the FCA’s strategic approach to managing the interventions it makes in response to mis-selling is still evolving.  It said that although the FCA and FOS work hard to co-ordinate their activities, they have not yet convinced firms that they have succeeded in doing this. It calls for the FCA, working with FOS, to further develop its strategic approach to mis-selling such that it is able to judge whether its interventions are having the intended effect.  It recommends that the FCA and FOS work together to develop better measures of the quality of complaint handling and to publish the results.  There was also a request for FOS to outline how quickly it expects to clear the backlog of PPI complaints.

FCA and HM Treasury Financial Advice Market Review (FAMR) (March 2016) 

As part of the call for input, firms raised concerns about a lack of transparency, consistency and certainty of FOS’ decision making processes following complaints.  In response, the report recommends that:

FOS should consider holding regular ‘Best Practice’ roundtables with industry and trade bodies FOS should publish additional data on its uphold rates (specifically around cases where advice was given more than fifteen years before the complaint was made) FOS should consider whether to establish a more visible central area for firms on its website the FOS Independent Assessor report should be expanded to identify potential areas for process improvement from 2017.

The FAMR report also tackled concerns about the lack of a longstop after which consumers cannot complain to FOS.  Some firms sought a blanket 15-year time limit on liability.  The report concludes that comparatively few complaints relate to advice provided more than 15 years ago (estimated by FOS to be an average 216 complaints per year, of which only 30% were upheld) and that 48% of these complaints concerned advice about mortgage endowment products. Given the historic nature of this specific problem and the fact that many of these complaints date from the pre-Retail Distribution Review era, the report anticipates that there may be a natural decline in the numbers of these complaints.  The FCA and HM Treasury have therefore concluded that a longstop limitation period should not be introduced but it will be reconsidered in 2019.

House of Commons report on Financial services mis-selling: regulation and redress (May 2016)

This report also calls on FOS (by the end of July 2016) to set out publicly a clear timetable for reducing and ultimately eliminating its backlog of PPI claims.  It also states that the FCA has not done enough to tackle the cultural problems that lie behind mis-selling and recommends that the FCA outlines the actions it will take in this respect.  It recommends that the FCA should set out what more it will do to ensure firms check consumer understanding of the products they purchase and of their rights to claim compensation, particularly for vulnerable customers, and to report back to the committee on this work in one year’s time.  Finally, it states that the  FCA should develop ‘real time’ indicators of the extent of mis-selling and assess regularly how effective their actions are in reducing it.

FOS Annual Report (May 2016)

FOS report that 1.63m enquiries were received in the financial year 2015/16. This is a drop of 9% on the prior year.  About 20% of enquiries turn into complaints and are investigated further.  Two thirds of complaints (excluding PPI) were resolved in three months.  As the official ADR provider under the ADR Directive, FOS is required to give answers to complaints within 90 days.  It is seeking to change its approach in order to meet this standard across the board but is yet to achieve this.

What this means for you

It will be interesting to see how the changes coming into effect today play out in practice.  We expect that the level of readiness to implement the changes will vary between firms and we may see an increase in FOS complaints resulting from the introduction of SRCs in the next few months.

The publication of complaints data for H2 2016 will be a key milestone both because of the likely significant increase in the number of complaints caused by reporting every complaint but also because the contextualising of data will allow new conclusions to be drawn as to what the data is telling us.  We expect differences of approach to tackling the question of materiality will emerge which could lead the FCA to providing some commentary on this topic.

The recent reports summarised above will lead to FOS giving further information about how it will tackle the backlog of PPI complaints.  This is very difficult at present due to the uncertainty as to when, if at all, any time bar will be introduced for PPI complaints and the timing of new rules and guidance on handling undisclosed PPI commission complaints.  We expect to see some significant peaks in PPI complaints once the time bar is publicised which may increase FOS’ backlog.

We are already seeing a more informal approach by FOS at the early stages of complaints, seeking to engage with firms and find speedy solutions.  We expect this will continue, as will the focus on meeting the 90 day time limit across all complaints in line with the requirements of the ADR Directive.

The call for further development of the approach taken around identification and handling of mis-selling claims by the FCA and FOS is likely to lead to further changes.  The focus by the FCA on the culture of firms is nothing new and we expect complaint handling to continue to be a key area of scrutiny in this respect.

For more information contact Chris Busby Partner +44 121 232 1225 +44 121 232 1225 Connect with Chris on LinkedIn Disclaimer

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.



Coutts and Secure Trust top FCA banking complaints tables Read next ‘I have an Italian heart but a British brain’ Friday, 24 November, 2017 Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Share on Whatsapp (opens new window) Save to myFT April 26, 2017 Experimental feature

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Private bank Coutts and challenger bank Secure Trust were the most complained-about banks in the UK in the second half of last year, according to new data from the financial regulator.

While the private bank’s customers – which include Queen Elizabeth II – may be expected to hold their bank to particularly high standards, Secure Trust received the same level of complaints about its banking and credit card services, with 15.1 per 1000 customers.

Secure Trust said the high level of complaints was due to the closure of its current account product during the period, which reduced its total customer numbers and increased complaints from those who “were very happy with the service we were providing”.

The company’s chief executive Paul Lynam warned earlier this year that competition between banks was leading to “ crazy behaviour ” in the unsecured consumer credit market, prompting it to pull out of the market.

Of the UK’s major banks, Royal Bank of Scotland received the most complaints about its banking and credit card services per customer, with 8.8 complaints per 1,000 accounts.

The data, from the Financial Conduct Authority, cover complaints made to firms in the second half of 2016.

In terms of total complaints, Lloyds Banking Group received the most complaints over the period, with a total of 603,877 complaints across all services and arms of the banking group, including 285,882 complaints about banking and credit cards.

In total, 3.04m complaints were reported by firms in the second half of the year; the data are not directly comparable to previous years since the FCA recently changed rules on how complaints are reported.

A total of £1.9bn was paid out in redress to customers over the period, with the vast majority relating to the PPI scandal. £221m was paid in response to banking and credit card complaints.

Christopher Woolard, FCA executive director of strategy and competition, said:

Consumers want a simple way to complain that does not leave them out of pocket. And they want to be assured that their concerns will be dealt with fairly and quickly.

These data will provide us with improved intelligence on complaints including new detailed data to show where industry is potentially failing consumers at product level.

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