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consumer credit complaints

Natalie Ceeney, chief ombudsman, at the Finance and Leasing Association's 8th annual consumer finance conference

London, 20 October 2011

What I want to focus on today is what I'm seeing - in my role as chief executive and chief ombudsman of the Financial Ombudsman Service - in relation to your world of consumer credit as members of the Finance and Leasing Association (FLA).

As you'll know, the ombudsman service deals with complaints from consumers about businesses across the whole range of financial services activity - from pet insurance to spread-betting.

We cover over 100,000 businesses - most of which operate in consumer credit with a standard licence from the Office of Fair Trading.

But consumer credit represents only a relatively small proportion of our work. Last year we dealt with 6,947 consumer credit complaints - out of more than 200,000 disputes referred to us in total. But the number is rising. In the first half of this financial year we've already received 4,351 consumer credit complaints - that's up by 23%.

So I'd like to look behind these numbers and focus on what we're seeing in consumer credit. And I'd like to discuss what you - and we - can do, to help prevent more complaints in future.

what's happening around us?

It's hard to pick up a newspaper at the moment without reading about consumer credit - and debt. And this really isn't so very surprising when we look at what's happening around us:

  • The credit crunch is still affecting many individuals and businesses.
  • Unemployment is at its highest for 17 years with the jobless rate at 8.1%.
  • More families are facing financial difficulties.
  • More people are relying on credit to make ends meet.
  • And many are finding lending by the high-street banks much harder to secure, as banking institutions lower their risk appetites.

From the complaints we see, the issue isn't just about the availability of credit. It's also about interest rates. With the Bank of England base rate at a record low, people are clearly unhappy with the returns they're getting on deposit-based savings. Yet interest rates on products like credit cards are at the highest they've been for 13 years - and we're seeing complaints from some consumers who are paying as much as 40% on certain credit cards.

This leads to an environment of stress and anxiety. And when people are stressed, things go wrong.

  • Consumers become anxious and distressed about their finances.
  • More accounts are referred to debt collectors.
  • More complaints are brought to the ombudsman than before (up 23% on last year).

what are we seeing?

In some respects, I'm afraid things are getting worse. The number of complaints we are receiving involving consumer credit has risen almost four fold in the last three years. The sector is "losing" almost 60% of the cases that we're resolving. That's not good. Banks "lose" around 53%, building societies 22%.

We measure "success" in two ways:

  • a reduction in the number of new complaints referred to us; and
  • a reduction in the proportion of cases where we overturn the business's own final decision on the complaint.

Consumer credit businesses aren't currently doing well on either measure.

Of the consumer credit complaints that we're seeing:

  • Around a half relate to "point of sale" loans or hire purchase agreements; and
  • The other half involve a mix of payday loans, hiring/leasing/renting, home credit, credit broking, debt collecting, catalogue and store card accounts.


But it's important to stress that we see both good and bad complaints handling across all sectors of the financial services market. This is evident from the complaints data that we publish - for any business that has more than 30 complaints with us in the relevant six-monthly period - showing both the number of new complaints referred to us about them and the percentage of complaints which we "uphold" in favour of the consumer.

In the consumer credit sector, there are a number of businesses who are "losing" most complaints that we look at. One business included in our published complaints data is losing 93% of the cases that come to us. This business seems to be charging a brokering fee for a "guaranteed" loan that never materialises in the cases we see. This sort of practice doesn't do much to help the reputation of the consumer credit sector as a whole.

But there are also businesses who are "winning" most cases with us. Our published complaints data shows a particular consumer credit business with a low "uphold" rate - which is pragmatic and open in its approach with us, investigates problems seriously, and clearly values constructive communication both with its customers and with us. This may explain why we don't need to overturn many of its decisions on cases.

So there's a significant gap between the "best" and "worst" performers - and you can close this gap. One of the ways to reduce the "uphold" rate is simply to try and resolve a complaint before it's referred to us.

Make the effort to open a dialogue between yourself and your customer - which means listening to what your customer's actually telling you, not what you think they're saying. Don't leap to conclusions or become immediately defensive.

None of this is rocket science - but our practical experience is that the better the communication between the two sides, the more likely you are to be able to nip problems in the bud and prevent complaints.

what are people complaining about the most?

The highest number of consumer credit complaints we've seen over the last 12 months have been about administration issues. This has accounted for almost a third of the cases - with 1,279 complaints over the period.

How can you avoid these types of complaints? In the cases we see, it's usually the simple things that businesses aren't getting right.

  • The handling of personal data - for example, not updating customers' contact details (address and phone number) when requested.
  • Breaches of confidentiality - for example, sending statements to an old address or an ex-partner.
  • Sending out automated letters which could be inappropriate or inaccurate in the circumstances - for example, where a consumer has reached an agreement about their account and a "standard" computer-generated letter doesn't reflect this.
  • Poor record keeping - for example, not keeping an accurate, up-to-date log of phone calls made to customers.

Here's an example of a recent complaint we saw - which could have been settled much earlier by the business itself, if only it had sorted out its administration.

The complaint was brought by a consumer who was owed some money from a finance company that had agreed to pay for some defects to her car. The company made a simple administrative mistake, sending the cheque to the wrong address. To make matters worse, it also got her name wrong (she was now married, having sent the business her marriage certificate a year earlier for it to update its records).

When she couldn't sort out the problem directly with the company, the consumer referred the complaint to us. She told us that she wanted an apology - and for the cheque to be re-sent to her. After our involvement, the company offered to send the cheque again - together with £50 for the inconvenience caused. Only they again sent the cheque to the wrong address - and again made out in the wrong name. We told the company to pay an additional £100 for the further inconvenience this caused.

And here's an example of a recent complaint we dealt with, where poor record keeping let the business down.

The consumer complained that the business was harassing him, calling him more than four times a day. The consumer said that the stress of this had caused him to attempt suicide on a number of occasions. However, the business had no record of the phone calls - and it denied the allegation of harassment.

The consumer sent us his actual mobile phone, showing the phone calls in question registered on his call log. The consumer also sent us medical records confirming his suicide attempts. We upheld the complaint and told the business to pay £2,500 for the distress and inconvenience it had caused.

This amount is unusually high - reflecting not only the level of harassment involved but also the poor record keeping by the business that resulted in poor complaint handling. Because of its poor records, the business could not answer our questions - nor could it properly address the consumer's concerns about how often they were phoning him.

We also continue to see a significant number of complaints involving section 75 - where goods or services are financed by one business and supplied by another. We handle these as complaints against the finance provider, not the supplier.

why am I telling you this?

For those of you who may not have had direct contact with us before, this is the Financial Ombudsman Service in a nutshell:

  • We were set up by the Financial Services and Markets Act 2000 to resolve individual complaints between consumers and businesses. Consumer credit businesses came under our remit on 6 April 2007.
  • We're a quicker and more informal alternative to the courts. Consumers don't have to accept our decisions - but if they do, they're binding on both the consumer and the business.
  • We're independent and impartial. If we decide a business has treated the consumer fairly, we explain why. If we decide the business has acted wrongly - and the consumer has lost out as a result - we can order the matter to be put right.
  • Our service is free to consumers.

What this means - in practice - is that I get to see things when they go wrong. And a core part of my role is putting things right in these circumstances. I have a team of 1,500 people at the ombudsman service - adjudicators and ombudsmen - focused on handling individual cases, deciding each complaint on its own particular facts and circumstances.

But another part of my job is to help businesses learn from our experience - so that we can help get things put right at source and prevent problems from happening again. Putting things right after they go wrong gives a business the opportunity to restore their customer's confidence. But getting things right in the first place is an even more powerful way of promoting people's confidence in financial services.

All the research shows that you can improve consumer confidence by handling complaints well - resolving them quickly and effectively. And I'd like to explain how our experience of handling complaints in the consumer credit sector can help you and your business build consumer trust in these current uncertain times.

preventing problems

I've just given two examples of complaint which could - and should - have been settled much earlier by the businesses involved. Let me now focus on what you can do to help prevent complaints.

keep good records
For example, logs of phone calls, copies of letters sent and received, and copies of all contractual documents. Poor record keeping can get you into trouble.

take the time to provide proper explanations
Where a business is brokering a finance agreement, it's vital that you explain the key terms in plain English. Many consumers won't read every part of a motor finance agreement and we would not always expect them to. Proper explanations can help businesses avoid later complaints about misrepresentation.

keep consumers informed
For example, you should be writing to consumers at the end of their interest-free period. This is required under the Lending Code (2E.8) - but it's surely just a matter of good practice anyway. We see many cases where, following our investigation, we're satisfied that the business complied with this requirement - and we're likely to find in favour of the business in these circumstances.

keep up to date with new rules and regulations
For example, a right to withdraw from a contract (otherwise known as a "cooling-off" period) now exists, whether the agreement was entered into on the business premises or off premises (ie distance-selling).

see complaints as a source of learning
We can all learn from past mistakes - our own and other people's. We're committed to publishing a whole range of information to help businesses better understand our approach to different kinds of complaints - based on our experience of resolving many other similar cases over the years. And we're currently consulting on publishing individual ombudsman decisions as well.

how we can help

We see a key role for us in helping businesses get their complaints handling right - to prevent problems from turning into full-blown disputes. We do a range of things to help you.

publishing complaints data
We're already providing you with a great deal of statistical information. This includes:

  • product and sector data in our annual review;
  • quarterly updates in ombudsman news on the products most complained about - and the "uphold" rates in relation to those products;
  • complaints data relating to the 150 or so named individual businesses who together account for around 90% of our complaints workload - showing the number of new cases and the "uphold" rates in relation to each of those businesses.

When we first proposed publishing complaints data in this detail - showing individual named businesses - it was seen as a pretty contentious issue. But now it's generally accepted as the normal thing for us to do - to be open about what we see and the cases we deal with.

We're confident that publishing this data really can have an impact on the behaviour of businesses. While some in the industry initially said that it was just an exercise in "naming and shaming", the reality is that stakeholders and commentators now focus just as much on those businesses who obviously handle complaints successfully as they do on those who - by comparison - are seen to handle their customers' complaints less well.

information about our approach
In dealing with over 200,000 disputes a year, we are, of course, uniquely placed to provide an independent and impartial view on the detail of what goes wrong - and how things can be best put right. Based on our experience of what we see and the cases we resolve, we set out our approach publicly in:

  • our regular newsletter, ombudsman news - with its complaints case studies and commentary on current issues;
  • our online technical resource - with technical notes and case studies covering the ombudsman's approach to complaints about the financial products and services that make up over 90% of our total caseload;
  • the FAQs on our website - based on the hundred or so questions that businesses most frequently ask us;
  • the advice and guidance we give on our technical advice desk - which deals with over 20,000 enquiries a year, and can give an informal steer on how the ombudsman might view particular complaints.

sharing our experience
Other external-liaison activities we carry out, to help promote understanding our of approach and to support businesses in preventing complaints, include:

  • our series of specialist seminars on complaints-related topics (most recently on disputes around section 75;
  • our introducing the ombudsman sessions around the country for smaller businesses who have little direct contact with the ombudsman service;
  • our relationship-management programme with the 35 financial services groups that together account for over 80% of the complaints we handle;
  • our cross-sector industry panel of 200 financial services practitioners - who we keep in regular touch with through a fortnightly email newsletter;
  • our smaller-business forum - which helps us keep in touch with the issues facing smaller businesses.

modernising our operations
We recognise that another way we can help is by making sure we offer such a good service that we can help restore consumer confidence in financial services. This means we need to keep up with the changing world - to be able to continue to meet the needs of our customers, businesses and consumers alike.

Work we're already committed to - as part of our plans and priorities - to help take our service forward includes:

  • investing in our staff and resources;
  • reviewing our "operating model" - which includes continuing to reduce waiting times and to improve service standards;
  • aiming to settle half of all cases other than PPI in three months - and three quarters of cases within six months.

But we want to do more - and we have ambitious plans. I want us to reach a point where:

  • everyone who needs to know about us does so;
  • we are making the most effective use of technology.
  • no one has to wait more than six months for a decision on their case;

let's start getting it right!
Complaints are an inevitable part of running a business and having customers. In the uncertain times we live in, people are more likely than ever to fall into difficulties, have problems and make complaints.

But complaints shouldn't be a "problem" to be shunned. They are the way forward to rebuilding trust. And we've all got a job to do in restoring trust and confidence in financial services.

We at the Financial Ombudsman Service can help you with this. Let's work together on it.

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