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why complaints handling matters

speech to the Consumer Action Network by Walter Merricks, chief ombudsman

London, 2 March 2007

Good complaints handling is now critical to the reputation of UK businesses. As tighter margins mean that it's harder to compete on core product prices, you would think that customer service would be seen as more critical to business success. Yet there are clearly serious failings in many of the largest businesses that provide services to consumers.

Indeed, the larger businesses become - as a result of mergers and acquisitions - the less it sometimes seems that they are capable of coping efficiently and fairly with consumer complaints. The race for size has left back-offices struggling to integrate old computer systems inherited from previous businesses, and unconnected complaints-handling units operating inconsistently with little sense of direction or leadership.

My observation is that the complaints departments of the largest businesses covered by the Financial Ombudsman Service are not seen as serious players within the corporate structure. Their job, when things are reasonably quiet, seems to be to dispose of complaints through a process that's as low-level as possible. Those in charge of complaints-handling units appear to have little clout - and certainly little ability to influence company policy, by feeding back the lessons of what they see. They are like the man with the dust-cart following the Household Cavalry - sweeping up the mess left behind by the brightly polished riders out in front.

Right across the consumer sector, company reputations are at risk. In the world of telecommunications, for example, NTL made headlines for its poor customer service, and more recently Carphone Warehouse found itself in trouble. Closer to home, a recent report by Ernst & Young suggested that standards of complaints handling by the major financial services groups still leave a great deal to be desired.

Yet the larger the customer base, the more vulnerable the company is to a concerted consumer-led campaign. Claims management companies, consumer groups, self-help websites, and social media such as blogs and bulletin boards are now all capable of uniting unhappy customers and generating huge numbers of complaints - in some cases, way beyond the capacity of businesses to handle them properly.

So it seems that any attempt to defuse the angry consumer with intelligent customer-care strategies is doomed to failure - because neither the intelligence nor the manpower is there. The huge advertising and PR budgets, the envy of the complaints managers, must look to them like so much mis-directed expenditure.

In the financial services sector, the combination of customers complaining about bank charges and the recent regulatory ruling about the unfairness of mortgage "exit fees" comes on top of the two million consumers who have complained about mortgage endowments over the past few years - one in eight of whom remained sufficiently dissatisfied to refer their complaint onto us.

The industry has paid out nearly £3 billion in compensation for mis-sold mortgage endowment policies. So these two million consumers have learned not to be afraid of complaining. And the confidence of consumers to take on the "big boys" is being enhanced and encouraged by a challenging media that never likes big institutions at the best of times.

This all sets a tough agenda for watchdogs and regulators. In the face of a public challenge on this scale, regulators can be caught off guard - without ready answers, as they take time to develop policies that conform to clumsy "cost/benefit tests" and "impact analyses". Meanwhile, the consumer-action websites dismiss the official watchdogs as ineffective - and lead the charge of direct "do-it-yourself" mass-action.

As for ombudsmen, we certainly know only too well - from our own experience of dealing with the tsunami of mortgage endowment complaints - that you need a sound infrastructure, robust management skills and the systems capacity to cope with dramatic increases in demand, if consumer confidence is to be maintained.

The Financial Ombudsman Service currently employs almost 1,000 people, and handles well in excess of 100,000 disputes each year - compared with the organisation of 550 people, dealing with 40,000 cases, that we were four years ago. We are the product of a merger that brought together six smaller dispute-resolution schemes. And it's now painfully clear that had that merger not taken place when it did, those small schemes would surely have collapsed by now under the weight of consumer grievances.

The Hampton review on regulatory and administrative burden, commissioned by HM Treasury, suggests joining up small public-service bodies wherever possible - or at least, not setting up separate new ones - to give fewer potentially-confusing points of contact to industries and to consumers. The principle is right. But my point is that any sober analysis of the risks for complaints- handling units, internal or independent, would surely conclude that robust and flexible resourcing is vital, to cope with potentially unmanageable spikes of activity.

At a time when both the Consumers, Estate Agents and Redress Bill and the Legal Services Bill are progressing through Parliament, it is clear that the demand for independent ombudsman services will grow - and with it, a demand for a more professional approach to complaints-handling within the sectors affected. But this government policy-making can risk looking piecemeal and departmentally ad hoc. There are hopeful signs in Whitehall of an appetite for a more joined-up approach. But signs of joined-up government in this area are not yet in abundant evidence.

If the standards of complaints handling in financial services can be poor, it may be a great deal worse in sectors unused to an ombudsman. The schemes that will provide complaints-handling services in those sectors will need to be robust, well resourced and prepared to set high standards for businesses - and for themselves. Everyone in the independent dispute-resolution field would be tarnished, if one of our organisations were found badly wanting. None of us want to see a Child Support Agency in our midst.

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