information for businesses covered by the ombudsman service
This section answers a number of frequently-asked questions (FAQs) about:
how we award redress
interest rates on ombudsman awards
when and how does the ombudsman add interest to compensation awarded to consumers?
Where a consumer has been wrongly deprived of a sum of money in the past – for example, where an insurance claim was wrongly rejected – we usually require the financial business to add interest from the date the consumer should have had the money until the date the money is actually paid.
In some cases, there will be an identifiable cost that the consumer incurred as a result of having to borrow money in the meantime. In other cases, there will be an identifiable loss of income on other funds that the consumer had to use instead.
But in most cases the effect on the consumer’s finances could only be discovered by making speculative assumptions. So unless it is apparent what the consumer’s borrowing cost (or investment loss) actually was, we are likely to award interest at 8% a year simple.
The law requires the financial business to deduct lower-rate tax from this, and some consumers may also have to pay higher-rate tax – even if they had to pay non-tax-deductible interest on borrowing in the meantime.
The current low rates paid on deposit accounts are not an appropriate yardstick. The rates of interest consumers have to pay in order to borrow are much higher. And we are usually awarding compensation for past periods, when deposit rates were higher.