Assessing the new financial customer protection body in Spain

Fedea publishes an article by Professor Benito Arruñada (Univ. Pompeu Fabra) analysing the Government's proposal to create an "Independent Financial Ombudsman Authority" to resolve conflicts between institutions and their customers. The author is critical of some aspects of the proposal, which could create another bureaucracy with para-judicial functions, discouraging efficient conduct by the three parties involved (institutions, customers, and the Authority), by offering incentives to file more complaints. The author therefore suggests recommendations for improvement, especially regarding the Authority's funding system.

 Main highlights from the report:

• Perhaps this is not the most efficient solution: Instead of reforming existing public bodies, a new one is created. From 3 to 4 public bodies with competences in the field of consumer protection. The new Customer Protection Authority will centralise in a single body the three complaints services currently run by the Bank of Spain, the National Stock Exchange Commission and the General Insurance and Pension Funds Authority. The resolutions will be binding for institutions in certain claims of less than 20,000 euros or of undetermined amount, although they may be appealed before the contentious-administrative jurisdiction. According to the author, for example, before creating or strengthening these bureaucracies with para-judicial functions, it would be advisable to review the organisation (staffing, fees, professional career) of the judicial system itself, with a view to improving its efficiency in conflict resolution.
  
  
• The Authority's funding design could incentivise the submission of complaints. On the one hand, the Authority will be financed by an annual fee based on the volume of complaints, which will be charged to each institution on a pro-rata basis: 40% of the costs based on the weight of the institution's complaints resolved in the financial sector and 60% based on the weight of the institution's complaints against it in the sector. On the other hand, by not charging any fee to the complainant, it incentivises the client not to desist in their claims, as well as to file frivolous claims, so that the institutions and, ultimately, the majority of their clients will be subsidising the most opportunistic clients and the mass litigation industry.
  
  
• Proposals to improve the funding system to encourage efficient conduct by the parties involved:

1. To abandon automatic apportionment of costs, in favour of budgeting of the new Authority body, linked to the achievement of objectives.  
2. To pass the fee on to the customer when the complaint is rejected, or charge a fee for the submission of complaints.
3. To link the fee to the difference between the number of unfavourable and favourable decisions of each institution to incentivize an amicable settlement.
4. To link the amount of the fee to the amount and complexity of complaints.