What do the parties think about informal resolution? Research needed!

We know a bit about what ombudsmen and other complaint-handlers think about using informal resolution approaches. In our mapping study, The use of informal resolution approaches by ombudsmen in the UK and Ireland, we asked ombudsmen why they use informal resolution. The answers tended to fall into one of two camps: because they are required or expected to do so by statute, or because it is simpler and quicker. The latter responses included acknowledging that speed can be a benefit for parties as well as for the ombudsman. Some also mentioned the added benefit of informal resolution helping to maintain or rebuild relationships between the complainant and the complained-about.

For the most part, however, views of what parties themselves think about the processes ombudsmen use to handle their complaints are conjecture or are gleaned from customer satisfaction research, complaints feedback, and other sources that have some limitations in terms of self-selection of samples and how robust the findings are.

A closer look: legal complaints

An interesting view of how informal resolution can benefit complainants and complained about in different ways appears in the Annual Report published yesterday by the Legal Ombudsman (LeO). The report states:

“We prefer to resolve complaints by brokering an agreement between the lawyer and the complainant. Therefore, our investigators attempt to settle complaints as amicably as they can, while bringing both parties (both the lawyer and the client) to a swift and mutually beneficial resolution. We call this “informal resolution”.

Where an informal resolution cannot be reached, either party may ask an ombudsman to make a final decision. At this stage the resolution will be based less on resolving the complaint amicably and more on what is deemed fair and reasonable.”

LeO reports that last year it resolved 39% of complaints informally (a slight decrease from the year before). Almost the same number (38%) were resolved by ombudsman decision. (The remaining 24% were either withdrawn or dropped by the complainant or discontinued by an ombudsman.) LeO expresses its disappointment that more complaints are not resolved informally:

“This is not the outcome we had hoped for, but as we have said in previous Annual Reports, the complexity of legal complaints means that often people want to exhaust all options before accepting a decision.”

The figures suggest there are more financial remedies agreed at the informal stage (67%) than recommended by ombudsman decision (40%). Most financial remedies are less than £1,000 (30% of ombudsman decisions, and 40% of informal resolutions).

The difference between outcomes of the two processes is most marked in the remedy ranges of £1,000 to £19,999: 9% of ombudsman decisions were in this range, but 17% of informal resolutions were.

LeO states:

‘In our view, these figures suggest that complainants do as well when accepting an investigator’s recommendation and opt for an informal resolution as they do when insisting on an ombudsman’s decision. It may also reflect an increase in the number of lawyers offering reasonable remedies at the first tier, which, if true, is a positive development.’

Good for complainants – what of the complained-about?

But for lawyers the opposite might be true. As Legal Futures has pointed out, in the report LeO urges

‘lawyers to think twice before pushing for formal decisions rather than accepting informal resolutions to complaints, even though the figures showed that the outcome of the former was less likely to result in the lawyer having to pay the client some money.’

LeO suggests that for lawyers, the advantages of informal resolution are in saving time and avoiding reputational risks. The report states:

‘While lawyers might be tempted to hold out for an ombudsman’s decision, they should factor in the additional time and resource they will have to put into managing the complaint and accept that the customer is likely to walk away feeling even less positive about their firm with the increased risk to their reputation that this entails.’

Yet another risk to informal settlements for parties complained about has been highlighted in relation to the Financial Ombudsman Service (FOS). An article last autumn in the financial press highlighted a loophole arising from court ruling on a FOS case, relating to whether a complainant can pursue further redress against a financial firm after a FOS decision:

‘The problem lies in the word “award”, which specifically applies to final and binding orders issued by an ombudsman reviewing a case.

In order to go before an ombudsman, a Fos complaint will first be reviewed by an adjudicator which would recommend a resolution. It is only passed on if either party rejects the recommendation.‘

The article suggested that if parties agree to an informal settlement (by adjudicator recommendation), the complainant could still be free to pursue more redress in court. It advises financial advisers (those complained about) to insist on either an ombudsman decision (so getting a final award that doesn’t leave them open to being sued for more, but risking being ‘named and shamed’) or a settlement via adjudicator that makes it clear it’s in full and final settlement.

Seeking parties’ views

Our mapping study found that very few ombudsman schemes ask their users for feedback specifically about informal resolution, though one reported that its ‘customer satisfaction research consistently shows informal investigations are the most popular type of investigation’ with both parties. Service complaints from users can also provide feedback on the processes used to handle complaints. Another ombuds reported that feedback on its informal resolution processes is generally positive, although some complainants question whether it treats the respondent service provider too softly.

The lack of information is striking when, as we found, most ombudsmen use informal resolution processes, and some for as much as 80% of the complaints they handle. We note in our report of the mapping study that there are calls for greater consistency in customer satisfaction reporting among UK ombudsmen. We also note, however, that the EU ADR Directive does not appear to contain any specific requirement to introduce customer satisfaction surveys or to gather feedback on case-handling processes.

It seems clear that research is needed on what users of ombuds schemes – both complainants and complained-about – think of processes used for complaints, and the outcomes they achieve.