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Consumer redress and financial
services
Alternative
Dispute Resolution Mechanisms
A solution to this problem, much talked about at present, is the
use of non judicial or out-of-court settlement procedures, also
known as ADR; alternative dispute resolution. As well as being cheaper
and much easier to use , such mechanisms often favour the consumer
by applying a "fair and reasonable" test rather than adhering
to the strict legal position. ADR schemes are not new having been
developed over the years to address domestic, off-line, disputes.
They now have the potential to adapt to new demands. ADR schemes
take various forms across Member States and the Commission's Recommendation
98/257 sets out principles applicable to bodies responsible for
consumer disputes.
We welcome the work of Commission DG
Markt in facilitating the development of a network of ombudsmen
schemes across Member States in the field of financial services.
This network envisages decisions being taken and enforced by the
scheme based in the same country as the supplier. Consumers will
in the first instance make reference to the relevant scheme in their
own country which will then take steps to put them in touch with
the supplier's scheme. This approach enjoys the great advantages
of building on schemes already in place, rather than attempting
to build a single Europe-wide system de novo and of linking the
decision making process closely with those best placed to enforce
any award.
Such an approach will also be very
flexible allowing it to develop as a whole and also on a series
of bilateral bases to changes in the market place and to particular
circumstances between pairs of Member States.
Legal and Practical Needs
There are a number of key issues relating to how the network might
function to be considered. The first of these concerns the legal
framework in which ADRs should operate. From a practical point of
view it is important not to lose sight of the reasons for using
ADRs rather than the courts - namely speed, cost and ease of access.
It is therefore not reasonable to expect an ADR scheme to replicate
the full judicial process. Accordingly it is important that consumers
are always able to take their case to court should they be dissatisfied
with the ADR scheme's decision. This is not an argument for saying
that ADR schemes should disregard legal requirements. However it
does suggest that it is more important that a satisfactory practical
(cheap, quick and easy) solution is reached rather than a perfect
legal one. Certainly some schemes put considerable effort into reconciling
the parties so reducing the occasions on which the whole decision
making process has to be completed.
The roles of the two schemes operators
are also important. These could range from:
- acting as mere conduits (simply
passing the complaint to the relevant scheme)
- through some form of advisory role
to either the consumer or the other scheme (or both)
- to taking joint action with the
other scheme.
The ability to be flexible in the approach
adopted to accommodate varying circumstances would seem to be important.
It may, therefore, be best to allow for bilateral arrangements to
be concluded between the suppliers and consumers scheme operators
so long as these are transparent.
Funding
There is also the issue of how schemes should be funded. There would
appear to be three basic options which could be combined in various
permutations. Member States could fund the schemes out of general
revenue, a levy could be raised on suppliers covered by the schemes
or consumers using the scheme could be charged. As one of the main
drawbacks of the existing legal systems is their cost to consumers
the last option, unless restricted to a token amount, is not attractive.
Nonetheless with different schemes operating in Member States, the
ability to have a flexible funding approach is important.
Enforcement
Methods of enforcement also vary across schemes. At the lowest level
there is moral pressure or the threat of poor publicity should the
company not comply. The more reputable the company the more likely
it is to be susceptible to this type of approach. At another level,
particularly within financial services, the institution's regulator
may take notice of findings against the institution and the steps
which have been taken as a result. An unsatisfactory response could
then trigger regulatory penalties which companies would be keen
to avoid. Finally, decisions may be legally enforceable. Here too
the ability to resort to a range of options to obtain the desired
result for the consumer is what matters. It would be a rather pyrrhic
victory if the consumer had to rely solely on enforcing findings
through the courts.
On-line redress
Much of this debate has arisen because of the growing use of the
internet and there is an assumption that ADR schemes should also
be on-line. Certainly schemes should be capable of communicating
with consumers and suppliers in their medium of choice including
by e-mail.
There are two issues which this raises,
one general the other specific to financial services. At a general
level insofar as an ADR scheme is designed to produce a outcome
acceptable to the parties, this can be easier to achieve by talking
rather than by exchanging a long series of e-mails. Whilst privacy
is an important issue generally, it takes on even more important
dimensions in financial services where, say, sensitive personal
data could be involved. Financial institutions take great care to
ensure that their on-line product and service facilities are secure
but this does not necessarily extend to the use of the internet
for the exchange of "correspondence". Accordingly a degree
of circumspection should be taken when assessing how far on-line
schemes will be able to replace the existing off-line processes.
Conclusion
In conclusion trust is essential to promoting the supply and purchase
of financial products and services the more so as trade across borders
grows. The provision of relevant predictable and timely information
about these products and services will help as will correct performance
of their obligations by financial institutions. However, there will
always be a need for a safety net and the existing legal systems
being too slow, costly and inaccessible do not provide this. Domestic
ADR schemes have developed to address this issue and the facilitation
of a cross-border network is a useful response to new problems.
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