Financial disputes on the up
Complaints about financial companies hit a record high in the last financial year, with disputes about mortgages, credit cards and insurance jumping by up to 84%.
The Financial Ombudsman Service (FOS), the independent organisation that settles disputes between consumers and financial companies, handled 789,877 consumer enquiries last year, of which 127,471 were new complaints.
Of these, 113,949 disputes were resolved and 57% of consumers received compensation. Around half of the total complaints received by the FOS related to just six of the UK's largest financial services groups.
Sir Christopher Kelly, chairman of the FOS, says the rise in complaints reflects the worsening financial climate.
“As businesses tighten their belts – and the credit crunch leads to increased financial difficulty for many consumers – we are gearing up to deal with further volatility in complaint volumes,” he adds.
Increasingly, the FOS says it is seeing complaints come from ‘blue-collar’ workers, with a 17% rise in the past year. In contrast, disputes brought by those from professional backgrounds fell by 18%.
Doug Taylor, personal finance campaigns manager at Which?, is concerned that not enough disputes are being resolved by the FOS.
"It's shameful that some firms are dismissing so many justified complaints that are upheld," he adds. "This could be just the tip of the iceberg as many people give up at the first hurdle rather than going to the Ombudsman. Companies have a duty to treat their customers fairly and this means giving all complaints due consideration and, if appropriate, accepting them."
Complaints about mortgages, credit cards and consumer credit rose by 34%
Car, household and travel insurance disputes increased by 84%
Complaints relating to payment protection insurance were up three-fold
Investment bond complaints more than doubled
Complaints about mortgage endowments fell by more than half
Health insurance complaints levelled off
Pension complaints are down by 9%
Issued by life companies and designed to produce medium- to long-term capital growth, but can also be used to pay income. The minimum investment is typically £5,000 or £10,000 and your money is invested in the life company’s investment funds, so the bond can either be unit-linked or with-profits. They offer a number of tax advantages, such as the ability to withdraw up to 5% of the original investment amount each year without any immediate income tax liability. Also, a number of charges and fees apply, such as allocation rates, initial charges, annual charges and cash-in charges. As investment bonds are technically single-premium life insurance policies, they also include a small amount of life assurance and, on death, will pay out slightly more than the value of the fund.
Investors who borrow money they use for investment and use the securities they buy as collateral for the loan are said to be “gearing up” the portfolio (in the US, gearing is referred to as “leveraging”) and widely used by investment trusts. The greater the gearing as a proportion of the overall portfolio, the greater the potential for profit or loss. If markets rise in value, the investor can pay back the loan and retain the profit but if markets fall, the investor may not be able to cover the borrowing and interest costs, and will make a loss. Also used to describe the ratio of a company’s borrowing in relation to its market capitalisation and the gearing ratio measures the extent to which a company is funded by debt. A company with high gearing is more vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad sales are.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.