Common financial complaints - and how to fix them
The Financial Ombudsman Service (FOS) received more than 2.3 million enquiries last year from people fed up with the treatment they had received at the hands of their bank, insurer or loan company. That is nearly 8,000 every working day. PPI aside, what type of complaints dominate the mailbag? Here are the five most unpopular financial products and what to do if you have a problem with them.
This year, complaints to the FOS about packaged accounts have more than tripled. These are paid-for current accounts that come with 'perks' such as free travel or mobile phone insurance, car breakdown cover or preferential borrowing rates.
Packaged accounts are only good value if you know what the perks are, make use of them, and are actually eligible for them in the first place.
The ombudsman says it continues to see complaints from people who feel they have been sold a packaged account that does not meet their needs. Some complain that their accounts have been 'upgraded' without their knowledge or they have been told that they have no choice but to accept a fee-paying account.
If you feel you have been sold a packaged account under these circumstances, or one that turns out to be useless, you may be able to claim compensation. Banks have an obligation to ensure the insurance that comes with your account is right for you, so you should not, for example, be paying for 'free' travel insurance with an age limit of 60 if you are 70 years old. If you think you have a case, approach your bank first. You are entitled to a refund of the fees you have paid each month, plus interest.
There are two big issues surrounding mortgages, the mis-selling of interest-only loans and changes to the interest rates on standard variable rate and tracker deals. Many consumers, from across the socio-economic spectrum, complain of hardship, something that the FOS believes will become more common in coming years if interest rates rise as predicted.
"Since the credit crunch, lenders have cracked down hard on interest-only mortgages, with many borrowers struggling to refinance once they come to the end of a fixed or tracker deal", says Mark Harris, chief executive of mortgage broker SPF Private Clients. "The problem is that certain valid repayment strategies, such as the sale of the property, are not accepted by some lenders."
He adds: "Even though interest rates have not risen in years, some lenders have increased their standard variable rates or even tracker rates regardless. This can make it very difficult for borrowers to plan ahead and, with tougher mortgage rules making it harder to remortgage, moving to another lender may not be an option."
Harris recommends overpaying your mortgage while interest rates are low if you can, to put you in a stronger position when you come to remortgage.
Borrowers who are struggling to repay their mortgage or who think they might in the future should seek independent advice, ideally well in advance.
The FOS says many borrowers leave it too late to seek help for financial difficulties. Because it is unable to reverse a repossession, it is limited in what it can do, even if a bank has treated its customer unfairly.
The majority of complaints about credit cards relate to Section 75 of the Consumer Credit Act. This is a useful piece of consumer protection that states a credit card company should shoulder equal responsibility if a supplier of any goods or services that you buy on your card breaches their contract. That is, when it works.
The FOS sees many cases where the credit card company has ignored or not properly understood its obligations, on everything from solar panels, timeshares and holiday clubs to concert tickets or fridge-freezers. The law is clear on this, if you buy something worth
between £100 and £30,000 and you do not receive it in the condition expected – for example, it never arrives in the post or a shop sells you a faulty item – your credit card provider should reimburse you in full.
Even if you only pay for a fraction of the cost of an item on a credit card, you are entitled to protection for the total of whatever you are buying. Say you put down a £100 deposit on a sofa worth £1,000 and the sofa company goes bust, you should receive the full £1,000 on your credit card.
Beware that Section 75 does not necessarily cover you if you buy something through a third party such as a travel agent or on a site such as Amazon marketplace. If there is a second cardholder on the account, they cannot claim against something they have bought unless it can be proved the item or service benefited the main cardholder.
Over the past year, complaints about payday loans have risen by 46%, with the majority of borrowers arguing that such loans were unaffordable.
"In many cases, we found that the lender hadn't taken adequate steps to assess the consumer's financial position when the loan was taken out," says Katherine Liggatt, a spokesperson for the FOS. "In particular, we saw cases where the lender clearly did not have an adequate credit-scoring process in place."
She adds: "Consumers also referred complaints to us where their difficulties had been caused by the payday lender's use of 'continuous payment authorities'. In some of these cases, the lender's repeated attempts to take payments meant the consumer faced a spiral of further charges – and was left without enough money to live on."
New rules, introduced in January, state that borrowers should never pay back more than twice what they initially borrowed, and someone taking out a loan for 30 days and repaying on time should be charged no more than £24 in fees and charges per £100 borrowed. Lenders are also no longer allowed to make more than two attempts to take money from your account.
Beware of payday loan middlemen. In 2014, more than 10,000 people contacted the FOS to complain about credit-brokering websites that take hundreds of pounds on the promise of finding cheap credit, with loans never materialising.
Also unpopular are motor credit providers who have issued loans to buy new and used vehicles. In most cases seen by the FOS, the car was in some way defective but motor credit providers were reluctant to accept liability, insisting that the consumer has to sort things out directly with the garage under a car warranty. This is not correct, motor credit providers have a legal obligation to refund a customer and the existence of a warranty does not cancel this.
The ombudsman sees more complaints about car and motorcycle cover than any other type of insurance, apart from PPI, and finds in the complainant's favour in a high proportion of cases.
The biggest issue is 'non-disclosure'. Since 2013, the law states that it is the consumer's duty to "take reasonable care not to make a misrepresentation" when applying for insurance. This replaces the previous duty to "disclose all necessary information".
But the FOS says it continues to see disputes where fraud is suspected. "Sometimes it is clear in the cases we see that an insurer thinks a consumer's claim is fraudulent. But rather than say so outright, they focus instead on what the consumer hasn't disclosed – and reject the claim straightaway," says Liggatt.
"Some insurers seem surprised that fraud must be established to a high degree of probability. But that is the law and we must take the law into account when we make our decisions."
The FOS has also seen a high number of complaints about the auto-renewal of policies. In the case of motor insurance, it is important to ensure you are not driving around uninsured. But many insurers use it as an excuse to up premium prices in the hope customers will not shop around for a better deal each year.
If you have bought insurance through a broker, it may be able to complain about your policy on your behalf. If you would prefer to complain yourself, the Money Advice Service has a handy insurance complaint letter template you can download at moneyadviceservice.org.uk.
How to complain
Contact the company about which you have a problem as soon as possible, ideally by letter sent by recorded delivery. Before you do so, decide what it is that you want. A refund or replacement? Compensation? Or an apology?
Try to keep your letter concise and to the point, quoting relevant consumer law. If you follow this up with a phone call, don't lose your temper. You don't want to give the company any reason not to address your complaint.
According to the Financial Conduct Authority, any firm that it regulates must respond to your complaint in writing within eight weeks, stating whether your complaint has been successful or, if not, why they need more time to look into it.
You cannot approach the FOS until this point but do not leave it too long: the FOS cannot look at complaints beyond six months from the time you received your final response or more than six years from the event you are complaining about.
Do not be tempted to use a claims company or any third party that promises to handle a complaint on your behalf for a cut of any compensation you might receive. The FOS is free to use, and insists it will not look at your case any more kindly if it comes via a 'professional'.
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
A homeowner’s worst nightmare; repossession is an action of last resort by mortgage lenders to recover money from borrowers that have failed to keep up with repayments on their mortgage or other loan secured on their home (see secured loan). Repossession is a legal procedure that has to go through several processes before the homeowner is evicted and the property reposed. These are: if a borrower keeps defaulting; the lender applies for a solicitor’s notice; the lender instigates possession proceedings through the court; at the court hearing a possession order is granted and sometimes a possession warrant; a bailiff is appointed and an eviction notice issued at which point the homeowner has two to three weeks to vacate the property.
Short-term cash loans designed to be borrowed mid-way through the month to tide the borrower over until they next get paid, whereupon the loan is settled. Generally used by people with bad credit ratings and/or no access to short-term credit such as an overdraft or credit card. Like logbook loans, this type of borrowing is hugely expensive: the average APR on payday loans is well over 1,000% and in some instances can be considerably more.
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.
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.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
A current account that charges a monthly fee in return for a “package” of additional services, such as travel insurance, credit card protection, mobile phone insurance, identity theft insurance, car breakdown cover or a “concierge service” that will book airline and theatre tickets or restaurant tables. However, many consumer experts say the features are overpriced and that more competitive deals exist elsewhere in the market and that very few packaged account holders actually take advantage of the features.