Annual review 2018/2019

As fraud and scams have become more sophisticated, we’ve told banks there’s a high bar to meet before they can refuse to refund customers’ money. More victims are now getting their money back than they would have done last year, but there’s still work to do.

Today, people can access their banking through more channels and technology than ever before. Unfortunately, this has provided fertile ground for scammers who are moving with the times, too. We’re seeing fraudsters using ever-more sophisticated techniques to take advantage of this. This means our approach to what’s fair and reasonable has also had to evolve.

This year, we’ve been working closely with businesses, regulators and consumer groups to share our insight. We’ve helped shift thinking on what ‘gross negligence’ actually means when it comes to unauthorised payments – which is far more than just being careless. In doing this, we’ve helped banks have a fairer understanding of whether or not a payment is actually authorised in the first place.

This work is meaning that far more people are getting their money back. Some complaints won’t reach us at all now, because banks are beginning to put this thinking into practice. Rule changes from January 2019 mean that we can also look at certain complaints about banks that receive fraudulent funds, as well as those that send them.

One of the fastest-growing types of fraud is ‘authorised push payment’ (APP) fraud – where people unwittingly act on fraudsters’ instructions and carry out the transactions themselves. We’ve been taking a close look at the APP complaints we’ve received. And we’ve reminded banks of their existing obligations to ensure that victims of fraud are treated fairly, as we’ve found that they haven’t always got this right.

From the end of May, some aspects of a new voluntary code will provide a mechanism for many victims of APP fraud to get their money back. Encouragingly, some banks have said they’d look to go over and above the new code to treat customers fairly – and we and banks need to keep working together to ensure these distressing situations get the fairest outcomes. We’ve published case studies on our website showing the types of complaints we see.

Nadia contacted us after her bank refused to refund £100,000 of her money, which she’d unwittingly sent to a fraudster.

She explained she’d received a call from someone who said they were from the police. They’d told her that staff at her local bank branch had been stealing money from customers, and that her own account was under threat. They’d convinced her that she needed to move all her money to a “safe account” to protect it from fraud.

Nadia then made four transfers in-branch for £25,000. She’d put the money in an account abroad using the information the fraudsters had given her – that this was a “safe account” in her name, and if the bank’s staff asked questions, that the money was for a family wedding.

Nadia said she’d then waited for details of her new “safe account” to arrive in the post. When this didn’t happen, she became suspicious and called the police – who told her that the investigation the caller had told her about didn’t exist, and that she should call the bank immediately.

However, the bank refused to refund Nadia’s payments, saying she’d authorised them herself. They said that she was well-known by branch staff – and although they’d noted the transactions were out of character, she’d given plausible answers to their questions about what the money was for and whether anyone else was involved.

Nadia remembered being asked these questions. But she said she was so anxious that she hadn’t really taken in what the staff had said to her. She said she’d wanted to get things over quickly and get out of the branch, so she’d just repeated the cover story she’d been given.

We looked at Nadia’s previous account activity and her circumstances at the time. In our view – while it was true the bank’s staff had asked some questions – Nadia’s behaviour and the nature of the transactions should have prompted them to follow the banking protocol: an initiative that involves branch staff getting the police involved if, after asking questions, they have concerns about a customer’s transactions.

If the bank had asked more questions and followed the protocol, it was very likely this sophisticated social engineering scam would have been prevented. So we told the bank to pay Nadia the £100,000 she’d lost, with interest.

Billy took out five loans with a payday lender over the course of seven months. The lender said it did some credit checks and an income and expenditure assessment before providing each loan. And based on what it saw from this information, it thought the loans were affordable it was reasonable to lend to Billy on each occasion.

However, Billy complained to us saying the lender had irresponsibly provided him with five unaffordable loans. We thought what the lender had done was proportionate for the first two loans. But we also believed that it wasn’t proportionate to keep doing the same thing from loan three onwards. So the lender didn’t do enough to check Billy was going to be able to pay these loans off.

By the time of loan three, the credit check showed that Billy taken out a lot of payday loans in the month before. The amount Billy was lent for loan three was double the amount of the previous ones. And the amounts lent for loans four and five weren’t any lower either. The other information we’d been provided to show what a proportionate check is likely to have looked like showed that in one month Billy borrowed more than his entire monthly salary from payday lenders.

This all meant the lender should have noticed the loans from loan three onwards were unsustainable despite what its checks might have suggested. The fact that Billy was applying for so many loans, which were for increasing amounts, in such quick succession was a clear indication that Billy was unable to meet his monthly expenses and getting trapped in a spiral of debt.

We told the lender to refund all the interest Billy paid on loans three to five. We also said it should work remove all reference to the loans from his credit file – the number of loans and the amounts meant that recording anything about these loans was adverse.

New cars aren’t cheap – and on the face of it, car finance is making them accessible to a lot more people. However, we’re concerned that some businesses may not be doing enough to check people can afford the finance agreements they’re signing up to.

In last year’s annual review, we said that for the most part complaints about motor finance were about problems with the vehicles themselves, or small print that people felt hadn’t been made clear.

For example, under arrangements such as personal contract purchases (PCPs), there are often mileage limits and criteria about what state the car should be in if it’s returned during or at the end of the term. Some people tell us these criteria weren’t made clear – and they’ve been hit with big charges.

We also see complaints where it’s clear that car finance businesses are doing risk-based assessments rather than affordability checks. We’ve told businesses it’s not good enough just to rely on credit files – they need to look into whether people can actually afford the repayments.

Claire came to us for help when her car finance agreement left her in financial difficulties. She’d bought a secondhand car for £14,000, and agreed to monthly payments of £400 over three years. Soon after the agreement started, she found herself struggling with the repayments. Claire contacted the finance company, returned the car and voluntarily terminated the finance agreement. However, the finance company told Claire she still had an outstanding balance of £7,000 to pay.

Claire then complained to the finance company that it hadn’t done enough to check that she could afford the repayments before agreeing to the finance. It didn’t agree, and said that when applying for the finance, Claire had passed the credit check and declared an income of £1,600 each month.

We asked Claire for all the information she’d provided for her credit application. We also asked the finance company for all the details it had checked before it made a decision. We agreed that the income Claire had disclosed was correct, but there was no consideration of her existing monthly expenditure. Claire had been living at home with her parents, but several months before taking out the finance she had moved into a rental flat.

We noted what the finance company had said about Claire passing a credit check, but when we looked at Claire’s credit history, we found other details that suggested that she wouldn’t have been able to afford the repayments. She was severely overdrawn on one of her bank accounts, and in arrears on many other credit agreements, where the repayments were as small as £20 a month. We felt that the checks the finance company did when considering Claire’s application weren’t reasonable or proportionate, and had it made the appropriate level of checks it should have been clear that Claire wasn’t able to afford the repayments. As the deal should not have been agreed, we thought it was unfair for Claire to be expected to pay money for a car she had returned.

We told the finance company to cancel the agreement so that Claire had nothing more to pay. We also said the agreement should be removed from her credit file. Because Claire had been able to use the car for a number of months before returning it, we thought the finance company should keep some of the repayments. We worked this out using the cash value of the car and the length of time Claire had used the car for. We then told the finance company to refund any overpayment above this figure, along with the original deposit and interest on these amounts.

Richard was a retired widower. His wife had looked after their financial affairs for many years, and since her death he hadn’t kept an eye on the bills, most of which were paid by direct debit. The couple had taken out their home insurance with their mortgage through their bank many years before. The loan had long been paid off, and they’d kept their home insured on the same policy.

Richard asked his daughter to look at his finances. She was shocked that Richard was paying well over £1,000 for his buildings and contents cover. He lived in a two-bedroom house and had few contents of any great value. She searched on the bank’s website and was offered a policy that more than met Richard’s needs for £200. It was provided by the same insurer too. So she complained to the insurer on Richard’s behalf.

The insurer told us that the policy Richard had was a legacy one. It no longer offered this to new customers and the questions it now asked of customers to determine risk were more comprehensive. The insurer said that both the new and the old policies were priced correctly, although it could offer customers discounts if they called up at renewal, or indeed move them on to the alternative policy. But Richard and his wife had never contacted them. And so the policy had automatically renewed with an annual uplift in price.

When we reviewed the annual renewal letters, there was nothing to indicate that there was any need for Richard to get in touch. In fact, the wording discouraged customers from needing to call. If nothing had changed, they were told there was nothing for them to do.

We concluded that the insurer had taken advantage of Richard’s lack of information about his policy, or knowledge of new ones. And it hadn’t made sufficient effort to prompt him to contact it or otherwise cap his price.

We upheld Richard’s complaint and asked the insurer to refund him £1,400, being a proportion of the yearly premiums from when we first thought that he and his wife became subject to potential detriment. We asked the insurer to add interest to that at our usual rate of 8% a year. We also told the insurer to pay Richard £200 compensation for the distress they’d caused.

The last year saw some memorable weather: the “Beast from the East” cold snap and the long, hot summer. But for some people, it triggered insurance claims – and we saw spikes in home insurance and building insurance complaints as a result. In many cases, we needed to tell insurers to do more to put things right.

Extreme weather, such as storms, floods and cold snaps, lead to more people claiming on their insurance – and often, this means we receive more complaints. During winter 2017/2018, the country was blanketed in snow, as the so-called Beast from the East bit. Then, last summer, the UK basked in its longest heatwave for 42 years. Each of these events – and the combination of the two extremes – contributed to problems ranging from broken boilers to structural issues with buildings.

Even when an insurance claim is covered, things don’t always go smoothly. In previous annual reviews, we’ve told insurers that communication is key to making things as easy as possible for their customers.

This year, we’ve found that insurers haven’t done enough in a number of cases to recognise the impact of avoidable mistakes in the claims process.

Ira contacted us after her insurer rejected a claim she’d made on her buildings insurance when her conservatory roof was damaged by hailstones. Ira was frustrated that, despite widespread media coverage of the bad weather, the insurer didn’t agree that it was “storm damage” – and wouldn’t cover her claim as a result. The insurer had also said that they wouldn’t repair the damage under the “accidental damage” part of Ira’s policy, because that only covered glass roofs, and hers was made of polycarbonate.

We asked the insurer for their full policy wording. We noticed that, in contrast to many insurers, they only defined a “storm” in terms of winds reaching a certain level on the Beaufort Scale, without mentioning any other types of weather. When we looked at weather reports from the time Ira’s roof had been damaged, these suggested that the weather had been exceptional – including the amount of hail, which was significant and unusual. In fact, the evidence suggested the weather been more intense than other conditions that would have met the insurer’s definition of a storm.

Because of this, we decided it wasn’t fair or reasonable for the insurer to reject Ira’s claim for storm damage. So we told them to settle it in line with the other terms and conditions of the policy.

As with online banking, trouble with technology can cause a headache for investment platform providers and their customers. During the year, we received hundreds of complaints relating to problems with the transfer of investments. In many cases, shortcomings in providers’ customer service had made a bad situation worse.

Compared with other products and services such as banking, we receive relatively few complaints about investments. However, the sums of money involved can be significant. When a large investment fund merged its platform with another last summer, not everyone’s investments successfully transferred across – with some lost, and others delayed.

We heard from people who’d experienced delays ranging from weeks to months – or who’d seen parts of their investment portfolios lost altogether – and who were now very concerned that they’d lost money, or the chance to “wrap” their investments in a tax-efficient way. Many also wanted to complain about the poor customer service they had received, as they struggled to establish what was happening and when things would be resolved.

In our view, many complaints could have been avoided if businesses had communicated better as the problem, as well as their response to it, developed. And in the same way as banking IT failure, businesses also needed to consider the individual impact of the problem on particular customers.

Apps for investments, crowdfunding, or consolidated pensions dashboards are increasingly popular, too. We’ve received a higher number of complaints about these types of platforms (for example, 200% more about crowdfunding this year than last). However, not all of them are regulated, so people aren’t necessarily protected if something goes wrong.

As always, even though the technology is new, our advice remains the same. Businesses need to treat customers fairly, considering all their individual circumstances. And for customers, people should take time to understand and ask questions about what they’re signing up to, and remember that the value of investments can go down as well as up. And if something looks too good to be true, it probably is.

Jamal complained when an IT systems upgrade by his pension provider led to an overpayment from his platform-based pension. Jamal was paid just under £23,000, instead of the £2,190 he’d expected. He paid it back immediately. But he suffered a loss, because some of his pension assets were sold to fund the overpayment.

After a few months, the business apologised for the error – which was caused by a contractor – and said it wouldn’t happen again. It offered a settlement for Jamal’s losses, with additional compensation. But Jamal wasn’t happy and asked for our help.

He thought that the mistake meant he would pay more tax than he should. When we asked the business, it said it would work with HMRC to fix any problems and refund any losses. But because it hadn’t done this before we got involved, we didn’t agree its settlement offer was fair.

We agreed that the problems caused by the contractor were unavoidable. But, the business was still responsible for Jamal’s losses. And it had taken too long to deal with his complaint. So, we told the business to put things right as soon as possible. We said it should increase the goodwill payment to Jamal, and pay interest on his losses, where appropriate.

The deadline for complaining to businesses is 29 August – but we’ll be dealing with PPI for some time yet. As we move towards the deadline, our flexible approach to getting fair, quick, and informal answers will help us manage uncertain volumes.

It’s time for people to decide whether they want to complain to businesses about PPI – and to take action. After the deadline of 29 August, they might still be able to come to us to look into their complaint after a business’s final response – which gives them up to six months to contact us if they’re unhappy.

In January 2019, we passed a milestone: over two million PPI complaints received. This year, we’ve resolved over 37,000 more complaints than we received, and we’ve resolved well over 1.9 million in total. We reached a different kind of milestone in autumn 2018, when for the first time since 2010, PPI complaints made up less than half our total new complaints. Across the year, it made up 46% of all our new complaints.

We’ve seen the uphold rate for PPI continue to fall, and that reflects the work we’ve done to help businesses and many claims management companies to learn from and apply our well-established approach: giving consumers fair answers far earlier in the complaint journey. Some of the delays we’ve seen this year have been outside our control: for example, one CMC plans to judicially review our approach to resolving PPI complaints, which has been affecting our ability to move many cases forward. But for other complaints, CMCs’ and businesses’ willingness to learn from our approach means fewer cases will need our involvement, and people won’t have to wait so long for our answer.

Over the years, PPI has been a major long-term challenge for us. But if one good thing comes out of it, it’s the significant experience it’s given us, CMCs and businesses, of resolving large volumes of complaints, fairly and efficiently.