The Financial Ombudsman Service complaints process “isn’t working”, said FCA director Linda Woodall last week. And she’s right.
A quick glance at the Financial Ombudsman Service uphold rates statistics, also published last week, shows a group of banks responsible for most of the new complaints continuing to have unacceptably high uphold rates.
Given that the vast majority of these complaints are about the same thing, payment protection insurance, you would expect to see a lowering of uphold rates as the banks learn from past experience/rulings and pay out on more valid claims without consumers having to go to the FOS.
As an example, Lloyds Banking Group brands Bank of Scotland (including Halifax) and Lloyds TSB had FOS uphold rates of 80 per cent and 86 per cent respectively for the first half of the year. This compares to 48 per cent and 74 per cent in the first half of the 2012 and 76 per cent and 87 per cent in the second half of 2011. On PPI things are much worse for the two Lloyds’ brands, with uphold rates of 87 per cent and 90 per cent in the first half of the year.
Barclays’ overall uphold rate was 64 per cent, lower than the 84 per cent in the first half of 2012 but still very high.
As a comparison, Nationwide saw uphold rates of 7 per cent for PPI complaints in the first half of the year, down from 25 per cent the previous six months and 18 per cent in the first half of 2012.
Lloyds customer services director Martin Dodd says during the first half of the year it voluntarily paid out on around 50,000 complaints with the FOS, due to the fact customers were waiting so long because of a backlog of cases, which has skewed the uphold figures.
It is difficult to judge how much this has affected rates or how many of those 50,000 would have been rejected, but even allowing for this, the uphold rates are still far too high.
Scanning the FOS uphold rates of various banks over the past couple of years suggests complaints procedures have not been improving in the way they should have been. But is this surprising when you look at the disincentives on offer?
As the biggest culprit in terms of complaint numbers for the first half of the year, I’ll use Lloyds again as a quick example.
The FCA produces separate stats from the FOS to show the way firms deal with complaints themselves (ie before the FOS might need to get involved).
Subsidiary Bank of Scotland closed 574,654 protection/PPI complaints in 2012, upholding 49 per cent, with 293,612 rejected. Lloyds TSB had a much higher uphold rate for PPI, with 90 per cent of complaints upheld by the bank and around 27,000 rejected. So, around 320,000 people had their PPI complaints rejected by the two subsidiaries in 2012 (the stats are classified as “general insurance and pure protection” but the vast majority of that is PPI).
But looking at the FOS stats for most complained about groups for the whole of 2012 and first half of 2013, the ombudsman received 203,919 PPI complaints about the same two subsidiaries.
Now it is hard to know for sure how many of these initial complaints were made by complete chancers who then don’t bother to complain to the FOS. But it is likely that a significant number of people with valid complaints don’t then follow up a rejection letter from their bank with a complaint to the FOS (either due to a lack of confidence or inertia).
It is easy to see how the lure of cutting your complaints bill could become appealing to senior managers with demanding financial targets to meet.
Dodd says Lloyds senior management are taking their complaints responsibilities seriously and he is in regular monthly contact with his superiors over the bank’s latest complaints figures. The bank was fined £4.3m by the FSA in February after 140,000 customers received delayed redress for missold PPI.
He points to improvements in FOS uphold rates over the past couple of months, which he says are now running at around 50 per cent for PPI. His target, which he says he is confident of achieving, is to bring this down to 25 per cent.
If can stick to this goal it will certainly be an impressive turnaround.
But there are still concerns about the large number of people who have had their complaints rejected by the bank and then do not go to the FOS. The FCA’s latest complaints data, due at the end of this month, will be a good indicator of how things have moved on.
Today FCA chief executive Martin Wheatley told MPs that current uphold rates were “not acceptable” and “outrageous” and pointed to two investigations that are underway.
Even if banks are moving in the right direction, the FCA thematic review and today’s strong words from Wheatley, should be welcomed. Senior staff must be left in doubt of the importance of treating complainants properly, and the stiff penalties that should be levied on continued failure.
Paul McMillan is group editor at Money Marketing – follow him on twitter here