In November 2015, the Alliance of Claims Companies (ACC) contacted the Royal Bank of Scotland seeking a response to the issue of alternative redress.

The opinion of the ACC and its members is that RBS's broad application of alternative redress is not consistent with the central tenet of an efficient and effective financial sector in the United Kingdom, namely that of treating customers fairly (TCF).

As the FCA’s predecessor, the FSA explained: “Firms must be able to demonstrate that they are consistently delivering fair outcomes to consumers and that senior management are taking responsibility for ensuring that the firm and staff at all levels deliver the consumer outcomes relevant to their business through establishing an appropriate culture.”

It is the opinion of the ACC that RBS's continued use of alternative redress when compensating customers for mis-sold Payment Protection Insurance goes against the principle of treating customers fairly. Whilst the scope of the current regulatory rules encompass provision for alternative redress, we feel that RBS's approach to it ought to be closely re-examined to ensure customers are receiving proper and fair redress at all times.

We understand that you too are concerned about your customers, as your website gives many examples where you encourage your customers to take the opportunity and seek the best possible outcome. For example you state:

We strongly believe that RBS's continued use of the policy of alternative redress is contrary to their own customer charter statements, and we feel sure that when re-visiting their practices RBS will agree that the outcome of their approach towards the application of alternative redress does not result in their customers being treated fairly, and most certainly does not position those customers back in an appropriate position following RBS's decision to uphold their complaints.

In August 2014 the FCA, in its publication ‘TR14/14 Redress for payment protection insurance (PPI) mis-sales’, stated: “…there have been shortcomings in the way some firms handled some PPI complaints in certain periods…” and “…firms have agreed to reassess 2.5m PPI complaints which they rejected (or potentially paid too little redress to) in earlier periods.”

We further drew to their attention the policy and approach of fellow members of the banking profession, such as Lloyds and Barclays, who had previously adopted the use of alternative redress but later concluded that it was not tenable as it did not result in fair outcomes for customers. These banks subsequently withdrew use of the alternative redress model of compensation.

Of course, these decisions were made when the glare of publicity was firmly on Lloyds and Barclays for using this method of redress and the furore that ensued was, we believe, influential in their decision making process that resulted in them ceasing the application of alternative redress.

Studies of consumer complaints the and evidence gathered in supporting those complaints (where alternative redress has been offered by RBS) tends to show in many cases that the failings associated with those sales were not simply limited to cost. It follows therefore that in many cases, alternative redress is not an appropriate or fair measure of redress.

The ACC believes that this unfairness is further compounded because, in applying the principle of alternative redress, many customers will not fully understand or appreciate the significance of redress calculated on the basis of alternative redress. Further, for those that do, many will reluctantly opt to accept the offer of redress because the only alternative is to reject the offer and submit their complaint to the FOS which may involve a wait of anything up to 24 months for determination.

The ACC feels that RBS do not offer consumers the ability to accept the redress offered and still pursue their complaint through the FOS if they feel they are entitled to full redress – hence unfairly forcing consumers into the choice of either accepting what redress is on offer (even though it is often not appropriate or fair) or subjecting themselves to up to two years of waiting whilst FOS determine the issue.

So the ACC, as a collective voice for a number of significant CMCs, and on behalf of our customers, requested that RBS immediately re-visit the policy of alternative redress and provide us with written confirmation of their intentions for ceasing the use of this policy where its use does not result in fair outcomes. In our view, this is in virtually all cases.

It is clear that treating customers fairly should be at the very heart of RBS's dealings, as we enter discussions for the future of PPI claims, and we do not believe that your current practices reflect that.