image credit: Freepik

Declining Customer Service in the UK Financial Sector Leads to Record Number of Ombudsman Complaints

May 22, 2024


The UK financial services sector is under enormous scrutiny. The Financial Ombudsman Service (FOS) reported a rise in complaints in the industry, indicating that customers are struggling to get adequate services and resolutions to issues from multiple service providers across the industry. 

This issue sprawls across banking, finance, and insurance and indicates a sector-wide problem related to customer service. With the primary driver of complaints emanating from current and credit accounts, there seems to be a major issue with banks’ inability to communicate clearly with customers, offer a personable experience, and meet the standards of quality and care once provided. Here’s what the FOS reported and how it impacts the industry: 

The FOS Findings

The Financial Ombudsman Services (FOS) recently released their findings from the second half of 2023 and observed a worrying uptrend in the data. Between 1 July and 31 December, they received a total of 95,349 complaints, an increase from 79,921 in 2022. 

The Ombud noted that banking and credit complaints featured in the majority of cases, with 40% of complaints related to current accounts and credit cards. When examining a little closer, these complaints are related to fraud and scam disputes. 

In terms of credit card complaints, they received a record-high of over 5500 complaints in just the last three months of 2023. From the FOS perspective, this can be attributed to “perceived unaffordable and irresponsible lending” by financial institutions. 

The general insurance sector also featured strongly, with the number of car and motorcycle insurance cases seeing a sharp increase. This, they believe, is caused by existing backlogs and delays with insurance firms processing claims and insurers’ vehicle valuations.

Chief Executive and Chief Ombudsman, Abby Thomas said, “In light of the continuing economic challenges people face, it’s always concerning to see complaint levels continue to rise. People’s relationships with their banks and insurers are incredibly important, with many relying on these businesses for their homes, their cars, and their livelihoods. That’s why I’m determined to ensure firms create an environment that is fair and transparent for all consumers. If customers don’t feel they’ve been treated fairly, they can come to our free and independent service, and we’ll investigate their complaint.”

The Banking and Finance Industry Response

According to statistics, Barclays has been identified as the bank with the highest number of complaints. According to the bank, this is not a failure in customer service per se, and they’ve urged the public to understand the numbers in the context of their size. 

In a statement on their website, they acknowledge that complaints have increased after a period of decrease and state that as one of the largest financial institutions, the number of complaints is relative to their size. 

At first glance, this explanation may hold water, as Barclays Bank UK PLC has 36 million accounts to manage. But this claim doesn’t fare well over time. Poor customer service is not a new, size-dependent issue, it is a worsening one. 

In 2020, the bank once again came under fire, this time from the Financial Conduct Authority, who fined Barclays and its subsidiaries £26 million for “failures in relation to their treatment of consumer credit customers who fell into arrears or experienced financial difficulties.” 

In fact, the FCA found industry-wide discrepancies with complaints handling across banks of all sizes, which was summarized in a report. Here are some of their insights from their report on complaint handling and customer service in the UK banking sector: 

  1. Complaints are poorly handled across the industry, and this can be attributed to banking culture, not the size of the organization. The FCA found weaknesses in governance, policies, and controls.

  2. The FCA found precedent for best practice, looking at some of the banks that were able to demonstrate consistency in handling high volumes of complaints and delivering fair outcomes.

  3. Their findings indicate that most banks need to take swift action to improve their complaint handling processes and work toward providing fair appraisals, consistently.

  4. The banking and finance industry will need to recognize that “sustained and rigorous effort” is required to meet the needs of consumers. Additionally, input and buy-in from senior management are important to ensuring that changes are embedded in governance structures. 

While banks may deflect from the root cause of the high number of complaints, regulatory bodies have shown that poor customer service is a major contributing factor. 

The Consumer Point of View

For consumers, the loss of trust and confidence in financial institutions is palpable and made visible through the increase in Ombudsman complaints. Factoring in the challenging economic conditions, customers want to know that their money is protected. They expect fair and reasonable treatment, regardless of their grievance. 

The Association of British Insurers (ABI) spokesperson released a statement saying they’re “concerned to see these latest complaints figures from the Financial Ombudsman Service. Insurers work hard to process claims as quickly and efficiently as possible while managing challenges beyond their control that can impact timings, such as delays to car repairs.

“However, clear and timely communication is vital to support the customer throughout any claim. We’ll work with our members and the FOS to understand where improvements can be made, in particular any learnings from the complaints that have been upheld.”

Equally concerned by the falling standards, UK Finance trade association said: “The financial services industry is committed to providing quality customer service and working to ensure customers are supported during the ongoing cost-of-living challenges.

“And when things do go wrong, firms are resolutely committed to putting them right as quickly as possible, and most issues are resolved with a customer directly. Where customers aren’t satisfied, they can complain to the Financial Ombudsman Service, who will independently look into the case and reach a decision.”

For many consumers, these statements feel like lip service, and financial services firms are urged to reflect on their commitment to customer care. This is a worrying trend, considering that payment protection insurance (PPI) has been a major cause of complaints. 

With the cut-off deadline for PPI claims fast approaching on August 29th and the fact that they are tailing off in any case, there are clearly plenty of other problem areas that need looking into. So, which are of the biggest concern?

  • Fraud and scams
    The FOS has shown over 12,000 complaints were logged in 2018/19, a rise of 40% on the previous year. So-called ‘push payment’ scams, where customers are tricked into making money transfers to fraudsters, were described by the FOS as one of the fastest growing types of fraud. As chief executive Caroline Wayman said: “Fraud and scams are becoming ever more sophisticated. We know from the complaints we see that banks aren’t always treating victims of fraud fairly. They must do better.”
  • IT failures
    Banks are also being criticized for not managing their systems, which came to a head with the IT meltdown at TSB. This prevented customers from accessing their accounts. Overall, IT issues led to some 15,000 FOS complaints, an 8% rise from the previous year.
  • Payday loans
    Complaints against payday lending companies hit a five-year high – there were nearly 40,000, up 130% on the previous year. However, while the volume is alarming, it should be noted many of these are not coming directly from borrowers, as they are made by claims management companies. Not all of these ‘farmed’ complaints hold water and are often deliberately being made in bulk. The aim is to overwhelm lenders and the FOS, with the hope they will agree on compensation payments since there is less time to make adequate checks. But, claims management firms are now subject to FCA regulation and the regulator has warned if the FOS is rejecting too many claims, then authorization could be denied.
  • Insurance
    Insurers are also under the cosh, with complaints against them rising 61% in five years and one in three of these upheld in favor of the consumer. Analysis by Which? showed 25,122 travel, home, and car insurance complaints lodged between April 2018 and March 2019, and some 31% of these complaints were in favor of the policyholder.

Buildings insurance was the cause of most complaints with a rise of 42% of claims found in favor of the consumer, followed by travel cover with an increase of 34%, while some 29% of complaints about car insurance were upheld. The research also found that most complaints were made because of policy exclusions, disagreements about non-disclosure, and pre-existing conditions. Despite this, the trade body, the Association of British Insurers, pointed out: “The complaints number cited by Which? makes up just 0.04 percent of all current home, motor and travel policies.”

Concluding Thoughts 

No matter what reasons – or excuses – exist, financial services firms that fail to get their houses in order could find matters worsen still further. From this April, consumers can now claim up to £350,000 in compensation – the FCA more than doubled the previous limit from £150,000, with the sum increased to cater to more high-value complaints. According to FCA chief executive Andrew Bailey: “Consumers and small businesses struggle with the cost and time needed to take firms to court, so it is essential they can receive fair compensation from the Financial Ombudsman Service when things go wrong.”

Meanwhile, those providers that offer corporate products should also be aware that the FOS now also offers its service to larger SMEs, in addition to micro firms and consumers, bringing an additional 210,000 into its remit. As Ms Wayman added: “Too often we see the interests of consumers are not hard-wired into financial services. This marks a five-year high in the number of complaints consumers have brought to us, and the behavior we’ve seen from some  businesses is simply not good enough.”