What is the point of a financial consumer rights watchdog if consumers win their cases but get no compensation or have to wait years for justice?

It’s a question for the Financial Ombudsman Service (FOS), established 20 years ago to overcome the imbalance of power between consumers (weak) and financial businesses (strong).

And it’s a question for nearly 13,000 people who have filed complaints with the FOS against Amigo Loans, a company which got into financial difficulties after it ran into a storm of criticism by offering costly guarantor loans where people underwrite loans for others — including often parents for their children.

The case raises issues not only about Amigo but about the handling of financial complaints in general. With 12,854 FOS cases filed against it and more expected, Amigo has warned that it will go insolvent if it has to pay present and future claims, leaving complainants with nothing.

The FOS in March stopped taking new cases and ceased progressing existing claims on the grounds that Amigo could not pay. The watchdog backed an Amigo scheme of arrangement — a form of financial administration — that would give customers at least 10 per cent. But it was rejected by the High Court after the Financial Conduct Authority, the regulator, intervened.

Amigo is an egregious example of what can go wrong with compensation claims. But many other FOS cases leave the complainants dissatisfied, notably those hit by delays, with the watchdog sometimes taking over a year to deliver results.

Not everything is the FOS’s fault. It’s certainly not responsible for Amigo’s woes. But with the pandemic exacerbating procedural hold-ups it is a good time to look at the system, especially as the economy is recovering: with consumer spending and borrowing rebounding, complaints could increase.

As Mel Stride, chair of the House of Commons Treasury select committee, has said: “The impact of coronavirus appears to have had a significant impact on the effectiveness of the FOS, with over 56,000 cases open for more than six months and over 23,000 open for more than two years.”

Overall, the FOS received 278,033 claims in the year to March 2021, compared with 271,468 the year before and 388,392 in 2018-19. Some 70 per cent of the cases resolved in 2020-21 were settled in six months, down from 80 per cent in 2019-20.

The FOS says the delays are due to increased complaints during the pandemic and “operational difficulties” at the FOS and financial companies.

But that’s not the whole story: even in 2018-19, only 74 per cent of cases were resolved in six months. In a welcome, if perhaps overdue, move, the FOS is adding 400 new investigators to its 4,500-strong payroll.

The FoS’s life is complicated by swings in activity. In the year to March, for example, there was a 72 per cent increase in claims by credit card customers refused compensation under the Consumer Credit Act, while online banking and payment complaints rose by 226 per cent. Meanwhile, claims from the long-running personal protection insurance (PPI) scandal fell.

Even when cases are completed, many consumers are left unhappy. Last year they won only 31 per cent of cases overall according to the FOS.

It’s hard to know from the outside whether this is fair or not. In categories where there is big public concern about practices, the vast majority of complainers win their cases. Guarantor loan customers won 82 per cent of cases, for example, in 2020-21 (up from around 20 per cent in 2018).

But in other, more mainstream, sectors, success rates were far lower. Just 29 per cent of credit cards complaints were resolved in the complainant’s favour. For lifetime mortgages — known as equity release — the figure in 2020-21 was only 2 per cent.

Having said that, the complainants’ success rate has been falling for some time, from 49 per cent in 2012-13.

The resolution rate is not entirely in the FoS’s hands as it depends on outside influences, not least the nature of the complaints. The figures for the mid-2010s were, for example, boosted by successful PPI resolutions.

Some claims may be unjustified or even frivolous. Others may be generated by publicity or by commission-based lawyers drumming up business.

But delays can be reduced, and not just by increasing the payroll.

The free service is financed by sector levies and case fees paid for by companies subject to complaints — £750 for each case, after the first 25 cases annually.

But the FOS says resolving a case costs £960 on average as problems have become more complex and financial companies may not respond quickly. Martyn James, of the free online complaints service Resolver, says: “Delays are caused by companies stalling in providing information to the service.”

Currently, companies don’t pay case fees until a case is resolved. If the FOS were to collect fees up front, financial companies would be incentivised to resolve more cases themselves.

The watchdog also needs more teeth. Currently, it has no power to enforce redress. If a customer tells the FOS they have not received compensation it will report the business to the Financial Conduct Authority, the regulator, which “can take action against the firm, including removing their regulatory permission”, the FOS says.

This convoluted process may encourage firms to drag their feet.

None of this helps the FOS’s reputation with consumers. Some 90 per cent of comments on the FOS on the Trustpilot review website leave hostile reviews, with just one star awarded.

The frustration is shared by Gary W who spoke to Money Mentor on condition of anonymity. He made a claim against his credit card under the Consumer Credit Act in June 2020 to refund him for a faulty car repair that cost £1,700.

He says had to pay another garage a similar amount to fix the damage. The credit card company turned him down even though he provided data and photographs of the first repair.

Gary applied to the FOS in June last year and in September was told that there could be delays. A year after it was made, his claim has not progressed beyond a holding statement.

This email, seen by Money Mentor, says: “In light of the government’s guidance around the Covid-19 outbreak, we’re having to work differently. It is likely that it’ll take us a number of weeks to respond to let you know your complaint has been received and allocated to a case handler — but we’re working hard to get back to you as quickly as we can.”

That was last September. Gary is still waiting.

This story has been amended since publication to clarify how much compensation Amigo might pay complainants, and that it was the High Court which rejected the company’s scheme of arrangement, not the complainants. The success rate of complainants against guarantor loan schemes has also been put into context.

Lindsay Cook is the co-author of “Money Fight Club: Saving Money One Punch at a Time”, published by Harriman House. If you have a problem for the Money Mentor, email