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Sharp rise in payouts by finance companies

There has been a substantial increase in the number of financial services firms that have been ordered to pay compensation to consumers for causing them distress.

The Financial Ombudsman Service said it ordered businesses to pay compensation to consumers for causing them "material distress and inconvenience" in 20,019 cases during the 2010/11 financial year, compared with 18,511 during the previous 12 months.

But most of the payouts were relatively small at less than £300, and it was only in a few "exceptional" cases that compensation of more than £1,000 was awarded.

Cases in which compensation was paid for distress ranged from customers having to make several phone calls to close a bank account to having to wait a week for an insurer to arrange a hire car.

But the Ombudsman also reported more serious cases where payouts exceeded £1,000, including one in which a travel insurer refused to arrange for a man to be flown home to the UK after he suffered serious injuries when he fell down a flight of stairs in Thailand.

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