Bank of Scotland 'shamed' in complaints scandal

CALLS have been made for a "fundamental overhaul" in the way financial services operate after the Bank of Scotland was yesterday fined £3.5 million over the mishandling of customer complaints.

The lender now faces a compensation pay-out of more than 17m to customers who were mistreated.

The Financial Services Authority said the group wrongly rejected a "significant number" of complaints it received about sales of several investments.

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Many of the complaints came from vulnerable, older customers, who had little or no experience of investing.

An internal investigation carried out by the bank, which is part of taxpayer-backed Lloyds Banking Group, found as many as 45 per cent of the complaints it handled should have been upheld rather than rejected.

The bank has agreed to review 8,614 rejected complaints relating to investment advice given from February 2004 to the end of 2009.

The typical investment during this period was between 20,000 and 30,000.

Citizens Advice Scotland chief executive Lucy McTernan branded it a "significant victory" for consumers. She said: "Since they were bailed out by public money in 2008, banks have been saying they want to win back the trust of the public. On this evidence they still have a long way to go."

• The five investment products at the centre of complaints

The FSA said between 30 July, 2007 and 31 October, 2009 BoS received 2,592 complaints about its sales of the collective investment plan, personal investment plan, guaranteed growth bond, ISA investor and guaranteed investment plan.

It added that the complaints were not assessed competently and fairly, with poor decisions made on whether the products were suitable for the people they were sold to.

Peter Vicary-Smith, chief executive of consumer group Which?, said: "This case reaffirms the need for a fundamental overhaul to the way the banking industry deals with complaints and illustrates why the Financial Ombudsman Service is so essential. The government must resist any pressure from the banking industry to weaken it."

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A spokesman for Age Scotland added: "This should not be happening that you're taking advantage of vulnerable older people. That shames the bank and it shames society."

The bank failed to carry out effective analysis of the causes of the complaints, which would have enabled it to identity and put right problems in its sales processes, helping it to ensure investment products were not mis-sold to people for whom they were not suitable.

The group has so far paid out 2.4m in compensation to customers whose complaints were upheld following an internal review, and it is expected to pay out a further 15m once other reviews are completed.

Ray Milne, risk director at Bank of Scotland, said: "We recognise we have fallen short of the high standards of service our customers should be able to expect of us and we apologise."