James Daley is the editor of Which? Money and is the key spokesman for Which? on all areas of personal finance. He was previously the personal finance editor at the Independent.
by James Daley
If you buy a new TV, computer – or just about anything at all in a high-street shop – it’s unlikely you’ll have too many problems getting a replacement if you find that it’s damaged once you take it out of the box.
Although it’s quite possible that you took your TV home and dropped it while you were unpacking it, the shop will almost always take your word for it that the product was already damaged when you picked it up.
By giving their customers the benefit of the doubt, the retailer may of course lose out. Once in a while, they may replace a product where, rightfully, they had no need to. But in retailing, the general principle that ‘the customer is always right’ remains at the heart of the business model. Retailers understand that it’s better to give their customers the benefit of the doubt – and risk being taken for a ride once in a while – than to alienate those customers who do have a valid complaint by treating them with suspicion.
Sadly, however, when it comes to financial services companies, the benefit of the doubt is rarely given – a fact that is evidenced by the ever-increasing caseload that ends up at the Financial Ombudsman Service.
The root of this problem lies in the lack of genuine competition within parts of the financial services sector. If retailers treat customers with suspicion when they make a complaint, they may never shop there again. But when it comes to banking, customers will put up with an awful lot before they will consider switching as they fear – first – that all banks are the same, and secondly – that the process will be too difficult.
In fact, not all banks are the same. But the hassle of switching means that most people never find out there are better alternatives – as they stick with the same old provider, no matter how badly they’re treated.
There may be some hope on the horizon, however. The draft Financial Services Bill proposes that the new Financial Conduct Authority should have a mandate for promoting competition – which may well prove the necessary catalyst for a change. Perhaps when banks and insurers are forced to fight tooth and nail for customers’ loyalty, they will begin to consider giving them the benefit of the doubt when they complain.
In an efficient market, complaints are an opportunity to increase a customer’s loyalty – to turn a bad experience into a good one. But each complaint that makes it to the ombudsman is an opportunity missed.
I look forward to the day when the Financial Ombudsman Service starts to announce record lows in its caseload, rather than record highs. That’s when we’ll know the market is finally working in the interests of customers, and not just its shareholders.
Two particular cases from ombudsman news stand out for me – both dealing with unusual situations where someone was defrauded by a family member.
Since ‘chip & PIN’ was introduced a few years ago, most banks have taken the view that if you claim to have been defrauded in a situation where your card was used with the correct PIN, then you must have been negligent and not taken adequate care to protect your card and code. Yet these two cases demonstrate the flaw in the banks’ position.
In the first case (ombudsman news 68/2) an elderly lady kept her card and PIN hidden away in a box at home and – somewhat distressingly – these were stolen by her grandson while an ambulance was arriving to take her to hospital with a stroke. She could hardly have been said to have been negligent. She took considerable care to keep her card and PIN safe, which is why the ombudsman told the bank to refund the money.
The second case tells the story of a mother who had her card stolen by her son. Although the mother was deemed by her bank to have been negligent in the way she had protected her card, the ombudsman upheld her complaint because it involved a credit card – and under the terms of the Consumer Credit Act, you can’t be held liable beyond the first £50 for fraud caused by negligence.
The two cases are good examples of where the banks involved should have paid out immediately and not disputed the transaction. I have chosen the second of these two cases to illustrate this point.
46/2 – disputed cash machine withdrawals – plastic card used as ‘credit token’
The Payment Services Directive, which came into force in November 2009, is quite clear that if someone is a victim of fraud, the bank must refund them immediately – unless it has good grounds to suspect that the cardholder has been negligent or acted fraudulently. It also expressly states that use of the correct PIN is not evidence of negligence.
I’ve picked my second case because it highlights another common complaint we regularly hear at Which? – consumers having insurance claims rejected for spurious reasons. In this instance, a gentleman was forced to cancel his holiday after coming down with a chest infection.
His travel insurer rejected his claim on the grounds that he had been suffering from a mild cough at the time he had taken out his policy – and so must have known of the illness.
Clearly, none of us are in a position to know when a mild cough is going to turn into something more serious – and this is a typical example of an insurer looking for any excuse not to pay out a claim.
76/10 – travel insurer refuses to pay claim for cancellation of holiday on ill-health grounds
Finally – how could I guest-edit an edition of ombudsman news and not mention payment protection insurance (PPI)?
I’ve chosen a case study that’s typical of someone who was automatically opted into taking out PPI when he applied for a credit card. In my opinion, these are among the worst PPI cases. The reason that PPI continues to take up such a huge amount of the ombudsman’s time and resources is that so many people never even knew they’d been sold it – and that’s exactly why claims-management companies are drumming up business by contacting anyone who ever took out credit, to see if they might have a PPI complaint.
PPI was the financial services industry at its worst. I hope that in today’s world, with a more proactive and interventionist regulator, we will never see a repeat of this kind of scandal.
71/1 – customer says he was never told that a payment protection policy was optional when he took out a credit card