Complaints double as PPI claims continue to flood in

CONSUMERS made a record number of complaints to the Financial Ombudsman Service in the three months to the end of June as the payment protection insurance (PPI) scandal reached a climax.

The FOS - which mediates between financial services firms and aggrieved customers - received in excess of 81,000 complaints over the quarter, more than double the number in the same period in 2010.

PPI accounted for almost seven in ten complaints, with an average of 900 each working day. The 56,025 PPI complaints compared with 104,597 in the 12 months to the end of March. Yet the ombudsman warned that the "real challenge" from PPI would not be evident until it unveils its figures for the second half of the year.

The banking industry's challenge against Financial Services Authority (FSA) rules forcing them to reopen PPI sales dating back to 2005 ended in May when they opted against pursuing the case any further.

The challenge died out after the banks lost an English High Court ruling, paving the way for compensation claims expected to cost around 4.5 billion

Many of those claims are currently being processed by the banks, who had previously put complaints on the backburner under a waiver agreed with the regulator. But with banks reporting record claims levels, PPI complaints lodged with the FOS are likely to soar over the coming months.

Tony Boorman, principal ombudsman and decisions director at the FOS, said: "With complaints-handling rules 'waivers' agreed by the FSA, the rate of new PPI cases has slowed, for the moment at least. And the efforts by many banks to clear the backlog of cases that has built up should see record volumes of cases closed, and high uphold rates."

Just 55 per cent of PPI complaints were settled in favour of the consumer in the last quarter, compared with 66 per cent last year and almost nine in ten the previous year.

Boorman said: "During the period of that judicial review, our ability to progress cases against many banks and other financial businesses was seriously hampered … That had an impact on the 'uphold rate', as inevitably it was the cases that we thought should be upheld that proved most difficult to finalise."

Complaints about mortgages also increased, with 2,044 between April and June, against 7,060 in the 2010-11 financial year. More than a third were upheld in favour of the consumer.

The trend is due largely to a rise in complaints about mortgage porting, whereby a homeowner transfers their mortgage and terms to a new property. The tightening in mortgage lending over the last three years has led to more homeowners being denied their porting requests as they no longer meet their lender's criteria, triggering complaints about declined applications.Complaints about credit cards and current accounts fell slightly, although they still accounted for the highest number of cases after PPI. Six in ten of the 5,500 credit card complaints in the last quarter were found in the customer's favour, in line with last year. However, just 26 per cent of the 3,201 grievances regarding current accounts were upheld.

The ombudsman also found in favour of the consumer in more than half of the complaints about investment management, unit-linked investment bonds and store cards, among others. Almost 60 per cent of complaints were upheld in relation to mobile phone insurance, fast emerging as a problem area as consumers question the value of their policies.