Only a week ago the Financial Ombudsman Service released its data for the quarter April to June 2023, quarter 1 of the FOS 2023/2024 financial year. New complaints relating to financial products and services totalled 43,953. In the same quarter in the 2022/2023 financial year the figure was 35,029, so the FOS has experienced another post PPI uptick in complaints. That’s nearly 9,000 more complaints! The top five complained about products were 1) current accounts, 2) credit cards, 3) car and motorcycle insurance, 4) hire purchase (motor) and 5) buildings insurance.
One of the interesting increases is hire purchase (motor). The increase is not surprising, as the cost-of-living crisis bites more people are reviewing their monthly expenditure, and therefore it is not a shock that the close inspection of their original paperwork is leading to an increase in these complaints. Complaints cover a wide range of issues but generally relate to charges, fees and commission (especially undisclosed commission), and these make up a third of these types of complaints. Undisclosed commission complaints are especially interesting, readers will recall that undisclosed commission [‘Plevin complaints’] led to an extended tail of PPI complaints and even saw previously rejected claims being upheld. There is no doubt in my mind that we are on the verge of an explosion of motor hire purchase claims and we are seeing the tip of an iceberg.
The message is clear, firms must learn, and they must do more to eliminate consumer harm
We have witnessed the FCA drive to eliminate consumer harm, across all the sectors they regulate, by forcing firms to provide fair value, issue timely and transparent information and appropriately manage conflicts of interest (including commission arrangements) in a steady ‘ramping up’ of rules to resolve and eradicate unfair relationships.
While the car finance sector is coming under the regulatory spotlight in terms of FOS complaints many of the issues in that sector cut across to other financial products.
Control of sales teams. In the car loan world, the challenge for lender firms, particularly in the control of dealer networks is the oversight of individuals’ behaviour in thousands of dealerships across the UK. Against this backdrop, some lender firms take the view that it is sufficient that a finance broker is FCA authorised, and therefore it can be assumed that they will be compliant with FCA rules. This approach simply does not cut it with regulators, in the same way that it doesn’t in other lending sectors. Recognise similarities in other product sectors?
Affordability. The FCA makes the point that the complexity of motor finance products can result in consumers not understanding how they work and more of a focus is put on monthly costs rather than the total amount payable. Affordability matters, particularly in a highly targeted sales environment. Again, there is a significant ‘bleed across’ to other financial products.
Unfair relationships. There is often an information asymmetry between the financial service product provider and the consumer. This over many decades has led to significant consumer harm. The car finance sector is now facing this spotlight, but the risk is relevant elsewhere.
Poor consideration of individual circumstances. In the same way that a PCP sales process needs to consider individual circumstances sectors need to be cognisant of this requirement too. The lifetime lending industry has just taken a similar FCA hit. During a recent review, the regulator found many examples of firms’ poor consideration of individual circumstances (including income and expenditure), dismissing discussions around alternatives, inappropriately incentivising sales, inaccurate and misleading promotions, the highlighting of product benefits without balancing descriptions of risks and inappropriately steering outcomes in favour of lifetime mortgage products. This sector has faced similar criticisms ever since the first home income plans appeared in the 1980s and all subsequent variations of the original products, when will this sector learn?
The message is clear, firms must learn, and they must do more to eliminate consumer harm. It is important that firms consider predictable harms throughout a product lifecycle. Recent Consumer Duty requirements, of course, raise the stakes on these issues as the cross-cutting rules add wider responsibilities onto firms to protect consumers. The financial service world has been in the ‘last chance salon’ many times before and it looks to me like it is back there again. Only time will tell if Consumer Duty changes will fix the systemic issues – we all need to make sure it does!