23May

The Financial Ombudsman Service (FOS) has published its annual review for the 12 months to March 31 2019.

The overall annual complaints total of 388,392 is the highest for five years and represents a 14% increase from the overall total for 2017/18. This was in spite of payment protection insurance (PPI) complaints having fallen by 3%, and one of the main reasons behind the increase was a huge increase in credit complaints.

39% of all FOS complaints concerned banking and credit, so this area now accounts for almost as many complaints as PPI (46%).

There was an 89% rise in consumer credit complaints when compared to the previous year, and credit complaints now account for one in three of FOS’s non-PPI cases.

Specifically regarding guarantor loans, complaint volumes rose by 152%, i.e. they increased by a factor of more than 2.5. This increase was higher than the 130% jump in payday loan complaints, even if it was also well below the 360% rise in instalment loan grievances.

The uphold rate across the credit sector was 50%. On some previous occasions, it has certainly been the case that a few rogue firms were giving the sector a bad name, but chief ombudsman Caroline Wayman thinks that in some areas, mistreatment of customers is more widespread. She notes in her foreword to the review that the uphold rate on short-term loans was around 60% and says that “diligent lenders have been the exception.”

Another quote in the report regarding lenders’ behaviour was:

“We’re concerned that businesses are failing to assess the affordability of debt and aren’t learning enough from the complaints we’ve resolved.

“The story of what we’ve seen in high-cost short-term lending this year is a story of vulnerability. In too many cases, customers of short-term lenders have been left to struggle with unsustainable and persistent debt, exacerbating what is likely to be their already vulnerable situations.

“Typically, this plays out through instances of repeat lending, where businesses provide high-cost credit – one loan after another – over many months and often years, even after it’s become clear that the borrower can’t repay what they owe.”

The report includes a case study based on repeat lending from a payday lender, with the consumer being approved for five loans with the same lender over just seven months:

  • FOS believed that the checks the lender carried out for his first two applications were proportionate
  • However, for the third, fourth and fifth loans, FOS did not believe it was proportionate just to keep on doing the same level of checks
  • FOS say that for the third application the credit check showed that he had taken out a lot of payday loans in the previous month. The amount of the third loan was double the amount of the previous ones, and in one month he borrowed more than his entire monthly salary from various payday lenders
  • FOS believes that the lender should have noticed that the third and subsequent loans were unsustainable despite what its checks might have suggested. The fact that he was applying for so many loans, for increasing amounts, in such quick succession was a clear indication that he was unable to meet his monthly expenses and getting trapped in a spiral of debt.
  • FOS ordered a refund of all the interest paid on loans three to five. It also instructed the lender to remove adverse entries from his credit file for these loans

The Consumer Finance Association (CFA), a trade body that represents short-term lenders, has blamed claims management companies (CMCs) for delaying assessment of complaints by its members. The CFA comments that many of these complaints are “badly constructed” making it difficult to process valid complaints. It also claims that some of its members have received 1,000 complaints from the same CMC in a 24-hour period, and that one lender told them that a quarter of their complaints were bogus and were from people that had never had a loan with the firm. The Association adds that it will report poor practice by CMCs to the Financial Conduct Authority.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article