skip tocontent

rebuilding trust after PPI

Natalie Ceeney, chief ombudsman, at the "fringe" events run by the Consumer Credit Counselling Service (CCCS) at the Conservative and Labour Party conferences

Birmingham and Manchester, October 2012

You don't have to look very hard these days to find pretty damning stories about banks. Whether the LIBOR scandal, interest-rate swaps, or PPI mis-selling, we've seen a series of scandals in our banking sector which have shaken consumer confidence to the core.

Trust in financial services is very low. A recent Which? survey suggested that seven out of ten consumers didn't trust banks to act in their best interests.

And this lack of trust really matters, when you consider that what financial services are actually providing is not a physical product but a promise - a promise to look after your money safely or a promise to protect you if a disaster happens.

I work at the sharp end of this. The Financial Ombudsman Service has the job of "putting wrongs right". We deal with disputes across the whole of financial services, from pawnbrokers to PPI, from mortgages to pensions. So we see where things are really going wrong. And unfortunately, there is a lot going wrong.

We've existed for 12 years now. When we were first established we dealt with around 25,000 individual cases a year. Last year, the number was closer to 250,000.

Over our twelve year history, more than half of our workload has been made up of disputes about just three issues - mortgage endowments, bank and credit card charges, and now the mis-selling of payment protection insurance (PPI).

The ombudsman service now employs over 2,000 people - and we resolve hundreds of thousands of disputes, informally and impartially, which would otherwise clog up the courts. Disappointingly, we are still having to grow - to meet demand.

So can this be right? Well, I'm probably the only chief executive you'll ever meet who will say, openly, that it would be a good sign if their organisation were smaller!

But the fact that we are so widely used is not only a sign that confidence in financial services is poor, but also a sign that consumers value the mechanism that parliament established to deal with things if they go wrong.

We measure trust in our own service - and the positive news is that confidence in what we do is rising. In fact, 77% of consumers using our service would recommend us to a friend or family - despite the fact that the nature of our work is that consumers don't always get the answer they were hoping for from us.

So you could argue that the ombudsman service is already underpinning trust in financial services. Certainly, if it wasn't for us, many consumers would have suffered severe detriment over the last decade.

But I'm not here to talk just about the ombudsman service. And I'm also not going to focus today on some of the larger issues that are currently being debated - about the culture in financial services, incentive schemes, or the structure of the banking industry.

This isn't because these issues aren't important - they clearly are. But instead, I want to get rather more practical.

I want to share the experience of the ombudsman service - and the insight we've gained from resolving over one million cases - so that we can work out how we really can build trust at a practical level.

So I've got four lessons which I distil from the cases we see. If we could learn from those lessons, I believe we'd go a fair way to restoring trust in financial services.

lesson 1:
for financial services businesses - deliver what you promise

As I said earlier, most financial services are promises. What's insurance, after all, other than a promise to protect you if something goes wrong? Or a savings account, other than a promise to look after your money?

But at the ombudsman service, we see many cases where a glossy, beautiful promise was made in marketing literature - that never translated into reality for the customer.

It's not hard to think of many examples where this has happened - all of which I've seen in our cases.

I could mention, for example, a major bank's recent departure from selling pet insurance, despite a promise to customers that "we'll cover your pet for life".

Or a mortgage product whose marketing literature proclaimed that the variable rate would never rise more than 2% above the bank of England base rate - when the small print said "unless we decide to do so" (which is exactly what the bank decided to do).

Or where PPI was sold to consumers who didn't need it or could never use it.

One of the reasons why I believe financial services are struggling on the issue of trust is that their messages and promises were believed. A generation ago, banks represented one of the most trusted institutions in the UK. Now customers feel let down and disappointed when they discover that the product they'd trusted in simply didn't deliver.

So if we're going to restore confidence, promises need to be kept - and products need to deliver what they promise.

lesson 2:
for financial services businesses - the deal has to be fair

A major challenge in financial services is that consumers simply don't know as much as the financial services provider they're dealing with. This isn't a supermarket where consumers can inspect the quality of the meat, or handle the mangoes.

Financial products are complex. And even if we significantly raise the quality of financial literacy (which we should, of course, do), there will still always be substantial so-called "information asymmetry" between consumers and financial services businesses.

This means, inherently, that consumers are easy to rip off in financial services. And so unless the initial deal is "fair", problems are likely to emerge later on. Unfortunately, we see this in a large number of problems that consumers refer to the ombudsman service.

And in many ways, this was the problem with PPI mis-selling. For most consumers, the deal simply wasn't fair. Consumers were paying high premiums for products that added little, if any, value. And for products which the consumer didn't really need.

And of course, PPI isn't the first, or the last, product like this. The FSA's recent clampdown on the sale of "identity theft cover" is another depressing example. Consumers didn't have enough information to see that they were being sold something that was often pretty much worthless. The deal was never "fair".

lesson 3:
for financial services businesses - people who complain aren't "problems", they're an opportunity to learn

One particularly disappointing issue for me is how people who complain are treated.

We all know that much has gone wrong in financial services. And when you consider that around 35 million PPI policies are believed to have been sold - and that out of the quarter of a million cases we've resolved at the ombudsman service, we've found in favour of consumers in eight cases out of ten - it's understandable why millions of people have been complaining about the mis-selling of PPI.

But we're already seeing consumers who bring PPI complaints being dismissed as just "trying it on" - and growing rhetoric about so-called "compensation culture". Of course, claims companies don't help here - either with their "have a go" messages or, at worst, with actions that exploit consumers who've already been badly treated.

Dealing with over a million consumers a year, we at the ombudsman service simply don't see much evidence of this "trying it on" mentality. We have the power to dismiss so-called "frivolous and vexatious" complaints - and we do. But, excluding PPI, it's only 1% of everything we see.

The reality is that most people - when things go wrong - still just "grin and bear it".

So how should we treat complaints?

  • First, we need to see complaints as legitimate. Our own evidence shows that the majority are justified. In two thirds of all the complaints we received last year, we told the business concerned to pay compensation to their customer. And bear in mind that all of these complaints had already been rejected by the financial services business in question.
  • And secondly, we can all learn from these complaints. Complaints aren't just problems to solve. They are opportunities for businesses to learn - and to put things right.

Some businesses do learn from complaints. But many don't. We started to see significant volumes of complaints about PPI around seven years ago. But it took a High Court case just over a year ago before most banks started taking them seriously. That sort of behaviour just isn't acceptable. And it's continuing to undermine trust.

lesson 4:
for consumers - don't bury your head in the sand

One thing I'm sure the ombudsman service has in common with all the MPs and researchers sitting here today is that we all see some pretty horrible cases of personal hardship.

People whose mortgages have gone up when their household income has gone down. People who can't keep up with mortgage repayments and are threatened with repossession. People whose illnesses mean they've lost their jobs, and whose debt spirals out of control.

Unfortunately, we're seeing a significant rise in cases where hardship is at the heart of the problem. Mortgage disputes referred to the ombudsman service are up a third compared with this time last year. And one in three of these cases involve situations where a household simply can't pay the bills.

They are heart-rending cases. And there aren't always easy answers about how we can help these consumers with their problems. But there's one thing we know that doesn't work - and that's consumers burying their head in the sand.

We see cases where repossession is imminent because someone hasn't paid their mortgage in six months - but where the lender would have been sympathetic, and tried to help rearrange finances, if only the consumer had made contact with them and explained that they'd been made redundant.

We also see cases where interest repayments are mounting and consumers are refusing to answer letters - but where a few calls would have put payments on hold pending a repayment plan.

At the ombudsman service we work closely with consumer advice agencies and other consumer networks, to try and get problems like this focused on as early as possible. Unfortunately, by the time a complaint is referred to us, something that might have been easy to resolve has sometimes escalated into an almost intractable situation.

I suspect that some of what I've said you'll recognise through your own experience. Experience of what goes wrong is what the ombudsman service can bring to policy debates. After all, putting wrongs right is what we do.

And I hope that some of these practical points will supplement the debate that's rightly taking place - not only here but across the UK - about how we restore trust in financial services.

image of newspapers

useful links