Pleas for help soar as banks aggravate debt woes

The Lending Code, to which institutions subscribe, requires them to be "sympathetic and positive" when they become aware a customer faces financial difficulties.

This is particularly the case where circumstances have changed due to the loss of a job, sickness and disability or the break up of a relationship or a bereavement.

Martyn James, a spokesman for the Ombudsman's Office, said: "Since the credit crunch struck, there has been a huge increase in people facing financial difficulty.

"Their situation can quickly deteriorate unless appropriate steps are taken.

"Speedy and efficient handling of matters by the lender is, therefore, particularly important, as is close co-operation between the consumer and the lender."

However, James warned that obstacles are often placed in the way of satisfactory solutions by over-prescriptive policies and processes, or where staff have insufficient training and authority to be able to tailor a suitable solution for the customer.

One case referred to the Ombudsman involved a bank customer whose wife had recently died. His health had subsequently become so poor he had given up his job as a warehouseman and was going into hospital for a major operation. He wrote to the bank explaining why he had fallen behind with loan repayments and asked for advice.

The lender's response was to send a letter, addressed to the customer's late wife, asking whether the loan would be repaid by her deceased husband's estate.

The customer wrote again, and explained that he was entirely reliant on state benefits. He enclosed a copy of a statement showing his benefits income.

The bank wrote back promptly, apologising for its mistake in addressing its earlier letter to his late wife and asked him to send details of his income. He replied, enclosing a further copy of his benefits statement and pointing out that he had already provided this information.

A week later, before he had heard any more from the bank, he had a phone call from a debt-collecting business chasing the missed payments for his loan. Alarmed by this turn of events, he rang his bank to try to establish what had happened. His call was passed through to several different departments but no-one appeared to have any record of his earlier correspondence.

Before he had time to work out what to do next, the planned date for his operation was brought forward and he went to hospital. On his return home several weeks later, he found that the bank had sent him a formal demand for payment. He had also been sent a letter by the debt-collecting business, asking him to get in touch "urgently".

He complained to his bank, and then to the Ombudsman when nothing was resolved eight weeks later.

The Ombudsman ruled that the bank had badly let down its customer. He was evidently in difficult personal circumstances and had taken the initiative in contacting them for advice about his loan repayments. However, far from taking a sympathetic and positive approach, the bank had added to his distress by its inept handling of the situation. It also appeared to have completely ignored his request for help in dealing with the arrears in his loan repayments.

The lender accepted that it had handled matters very badly. It offered to write off the remaining debt of 700 and to pay the 250 in acknowledgment of the distress and inconvenience it had caused.

In another case, a woman contacted her bank for advice, as she was finding it increasingly difficult to meet payments on her outstanding 5,500 credit card and loan payments, because she had been forced to cut back her hours at her supermarket job after suffering from clinical depression.

A member of staff at the local branch gave her a list of not-for-profit debt-advice agencies, together with a printed form headed "Financial Statement". He told her to fill in the statement with details of her income and outgoings and to take it to one of the agencies for "verification". He said once she had done that, the bank would consider how it might be able to help.

Some weeks later she returned to the bank. She had been to a debt-advice agency and had found it helpful to talk through her situation with an adviser. However, the adviser had said he was not in a position to verify her income and outgoings.

At the branch she was told nothing could be done to assist her until the statement was "properly verified". She was advised to find a debt-advice agency that would do this for her, implying she should pay for the service.

Two months passed, during which she tried unsuccessfully to obtain "verification" of her income and outgoings. Different members of staff from the bank rang her on several occasions during this period, with further queries about the information in her financial statement.

She also received several standard letters from the bank requesting payments. Each time she received one of these letters she rang the contact number and explained that she was waiting for advice from the bank on how to manage her debt. She was told this would be noted, but the demand letters continued to arrive.

Eventually she wrote to the bank complaining about its lack of help and advice and how its poor handling of the situation had caused additional anxiety at a time when her state of health was already poor.

The bank rejected the complaint, saying her "failure to co-operate fully" had "limited" the extent to which it could help her.

She contacted the Ombudsman, who upheld her complaint and ordered the bank to pay 500 as compensation for the significant distress and inconvenience its handling of the matter had caused.

It could find no logical reason why the bank should have required "verification" of her statement. The bank held her current account and was far better placed than any third party to assess the accuracy of the information she had provided.

There was no evidence she had not been fully co-operative. She had taken the initiative in approaching the bank for guidance as soon as she realised her financial position was becoming difficult. And she had willingly answered all the questions put to her about the details in her statement.

By contrast, the Ombudsman was critical of the bank's piecemeal approach over several weeks, and found it had no coherent records of any conversations with her.

As a result the bank also agreed to combine the credit card and overdraft debts, to be repaid in interest-free instalments, reviewable every six months.

Cancer patient left in dark over his loan insurance claim

I couldn't afford the repayments but was told they were waiting for information from my GP

TOM Harkins of Linlithgow contacted Scotland on Sunday when his bank seemed to be refusing to meet his claim on payment protection insurance, even though he was dying of cancer.

Harkins explained: "I took out a 5,000 Bank of Scotland loan two years ago to be paid over a three-year period. I also signed up for Creditcare Gold cover from Halifax Insurance which states it covers unemployment and provides cover for illness and death."

Last September, Harkins was diagnosed with cancer of the oesophagus . He said: "My doctor told me the illness was inoperable. I didn't ask him exactly what that meant, because I didn't want to know. But it certainly wasn't good news."

He informed Halifax of the illness. It confirmed this was covered by the policy, so he could make a claim. A Halifax adviser informed him it should take around 14 days to process the claim after the relevant forms had been received, and said he should continue making his repayments until the matter was settled, which he did.

However, the months passed and his claim failed to make any progress. He repeatedly called to chase up the claim, only to be told Halifax was waiting for information from his GP.

Harkins said: "I was beginning to think they wanted to get as much money out of me before I died, without settling the claim.

"I called a number of times to find out what was happening, as I couldn't afford to make these repayments, and was always told they were awaiting further information from my GP, which I do not quite understand. My GP has already informed them I have inoperable cancer. They said he had to fill out a questionnaire. I asked the Halifax to send me the questionnaire and I would give it personally to my GP and he would then fill it out, which they refused to do."

Then, at the end of January, out of the blue Harkins received a letter from the Halifax saying his claim was being closed. It was at this point he contacted Scotland on Sunday.

We called the bank, which claimed to have sent four copies of a medical questionnaire to the GP, only for its letters to go unanswered. This was why the claim had finally been closed. The bank said its policy did not allow for the form to be sent to the patient for him to take into the surgery. The surgery maintained it had never received the forms. What happened to them is, therefore, a mystery, although disruptions to the postal service were ongoing during this period.

After our intervention, the forms were safely received by the GP, and the Halifax immediately approved the claim in full, backdating it to September when the illness was first diagnosed. Harkins has been sent a cheque to fully recompense him for the payments he made after his claim was lodged in September.

However, doctors are increasingly facing a burden of paperwork from insurance companies, relating to mortgage and loan applications, and submissions for health and life protection, as well as claims.

Dr Andrew Buist, deputy chairman of the GP committee at BMA Scotland, said that while dealing with insurance applications and claims was not covered by their contracts, he was sure that most doctors would deal with such correspondence in a professional manner.

He said: "I will deal with something of this sort every few days. Sometimes it might be a mortgage application or holiday cancellation claim, or indeed, as in this case, someone with cancer. Sometimes the patient brings in the forms, which helps them keep control of the process.

"I would personally hope to get something like this away within a couple of days, as I would with any professional correspondence. It's not my first priority. But I certainly wouldn't leave it for any length of time before dealing with it."

Dr Buist added that how to deal with insurance forms and whether to levy a fee for the additional work was decided practice by practice.

"Usually, if it is just a signature, then I do not charge. However, some of these forms can be several pages long and take half an hour to complete, in which case we might levy a fee," Dr Buist added.

Get out of trouble

What to do if you find yourself in difficulties

Contact your bank or other relevant institution and tell them about your problem.

Keep a detailed record of the date, time and contents of any conversation.

Co-operate with the institution to draw up a schedule of repayments.

Be realistic: only agree to a plan to which you can adhere.

Seek help from a money advice agency which offers free advice.