Financial Ombudsman Service complaints rise across the FS Sector during pandemic

Out-Law News | 08 Jun 2021 | 11:01 am | 4 min. read

The number of complaints to the UK’s Financial Ombudsman Service (FOS) rose by 2% in 2020/21, according to new data.

While there was a significant decrease in complaints about payment protection insurance (PPI) last year, the number of complaints linked to banking and credit soared 66% compared to the previous year.

If PPI complaints are excluded from the data, the number of new complaints to the FOS rose 58% year-on-year, with 235,993 new non-PPI complaints compared to 149,315 non-PPI complaints received in 2019/20.

Financial services regulatory dispute resolution expert, and ex-FOS ombudsman, Anthony Harrison of Pinsent Masons, the law firm behind Out-Law, said the complaint data showed the impact of Covid-19 pandemic on lives and livelihoods has been profound.

“Set against that backdrop, the FOS has continued to intensify its regulatory focus on a range of financial service products and areas such as borrowing and pensions, as well as paying close attention to firms’ treatment of vulnerable customers,” Harrison said.

The Covid-19 pandemic had an impact on both the types of complaints received and the FOS response. The body said it had managed to resolve nearly a quarter of a million complaints during 2020/21, with an uphold rate of 31%. However, the high number of new complaints received put pressure on waiting times.

The FOS acknowledged the pandemic had challenged businesses, but said many complaints might have been avoided with better communication and managing customers’ expectations effectively which can help generate goodwill and pragmatism, rather than distrust and frustration.

The ombudsman also highlighted the need for firms to pay attention to individual circumstances, saying complaints were often upheld because a business had failed to address what had gone wrong, or how to move forward, in a way that suited the customer concerned.

“There is not only a regulatory imperative to resolve cases quickly and fairly where possible, but also a strong business case for doing so. Firms who are able to properly address complaints up-front through robust complaint-handling systems and clear communication channels will be more likely to reduce the number of costly and time-consuming complaints that may otherwise develop further down the line,” Harrison said.

There were 170,648 complaints about banking and credit in the year to 31 March 2021, compared to 103,070 in 2019/20. The FOS said unaffordable lending was the most complained about issue, with 57,571 new complaints, while current accounts were the most complained about product.

The FOS said banks should help those in difficulty while also considering whether customers’ concerns about current repayments could highlight an issue with the original lending, such as whether they would ever have been able to repay the debt in a sustainable way.

Last year the Financial Conduct Authority (FCA) wrote to the FOS to clarify how lenders should approach government schemes designed to support businesses through the Covid-19 pandemic, asking the ombudsman to take into account the schemes’ requirements when handling complaints.

Financial services regulatory dispute resolution expert Jonathan Cavill of Pinsent Masons said: “Customer circumstances, as well as vulnerable customer considerations, are extremely relevant right now, particularly due to the pandemic and the FCA publishing its guidance on customer vulnerability. The issue has also come into sharp focus in the context of the FCA’s current consultation on a new consumer duty which explicitly references the need for firms to provide an additional level care to ensure they meet the needs of vulnerable customers.”

The FOS data showed there was also a substantial increase in the number of complaints about insurance and investments and pensions, although these represent a smaller volume of the total complaints.

There was a 36% increase in complaints about insurance, and a 91% increase in complaints about investments and pensions.

The most complained about product in the pensions sector was self-invested personal pension (SIPP) transfers, with an uphold rate of 56% compared to 22% for investments and pensions overall.

Complaints linked to SIPPs generally involved due diligence checks that were or should have been carried out by the SIPP operator. The FOS said it had seen many examples of these transactions resulting in the loss or likely loss of consumers’ pensions, and has asked operators receiving these complaints to give careful consideration to published decisions on similar complaints.

“Pressure has been mounting on the SIPP provider market for a number of years for alleged due diligence shortcomings. It is likely that there will continue to be a focus here for the regulator and claims management companies. It will be crucial for these firms to respond robustly, demonstrating compliance with regulatory expectations for historic business, as well as agility in improving processes where necessary in the future following any negative FOS findings,” Cavill said.

The ombudsman predicted there would continue to be complaints about pensions, with recent FCA data showing an impact on retirement plans for 14% of those still working.

The FOS said regulated pension providers should be proactive about communicating customers’ options and explaining the risks involved in investing.

The FOS also analysed complaints on the behaviour of claims management companies (CMCs) as it now has two years’ worth of data on these.

The volume of complaints against CMCs decreased from the previous year in line with the reduction in the overall volume of PPI complaint referrals.

Although the FOS said it expected complaints linked to mis-sold PPI claims to decrease further, CMCs continued to be active in other areas such as consumer credit, investments and mortgages, and it will be important that businesses and CMCs co-operate effectively, so consumers get fair outcomes as efficiently as possible.

“With the steady decline in volumes of PPI complaints, CMCs are looking to find the next high-volume financial services ‘scandal’,” Cavill said. “CMCs will also be under pressure if the proposals set out in the FCA’s consultation on CMC price charges are implemented. This all points to some CMCs cutting corners in pursuit of profits, and we have seen these negative behaviours already.”