UK banking complaints hit 10-year high amid surge in third-party claims

Official UK banking complaints have hit their highest level in a decade, partly driven by claims management companies (CMCs) that the financial ombudsman is trying to clamp down on.

Consumers raised 80,137 complaints about banking and payment products in the 2023/24 financial year, according to data from the Financial Ombudsman Service (FOS), up 23 per cent from 61,995 in 2022/23.

The FOS said the increase was driven by concerns over current accounts and credit cards, with consumers particularly complaining about administration, customer service and “perceived unaffordable or irresponsible lending”.

Higher complaint levels are being seen across the financial sector, with total ombudsman cases jumping 20 per cent to 198,798 in 2023/24. Numbers for the current financial year suggest this trend is continuing, the FOS said.

It flagged increasing an number of cases being brought by CMCs and other professional representatives across all categories, making up 25 per cent of the complaints in 2023/24 compared to 18 per cent in 2022/23.

The FOS has found that some CMCs submit mass claims without determining whether they have merit, while others fail to respond to requests for evidence.

In May, it proposed a £250 fee for professional representatives to lodge a case, reduced to £75 if the outcome favours the consumer. Banking trade body UK Finance has backed the measures.

Multiple banking executives told City A.M. that they were concerned by a jump in third-party claims this year, including on behalf on consumers without their knowledge, with one saying the issue “calls into question the integrity of the UK banking system”.

In March, a spike in claims from a single CMC and related administrative costs partly triggered a profit warning at Vanquis Banking Group that sent the 144-year-old lender’s shares down 50 per cent in a single day. It has since taken legal action against the firm.

“While [professional representatives] have an important role to play in resolving financial disputes, they can also gain financially from our service without contributing to the running costs,” James Dipple-Johnstone, the FOS’ deputy chief ombudsman, said on Friday.

“There is sometimes little evidence of due diligence by some representatives to ensure claims they advance have merit.”

The single most complained about financial product in 2023/24 was current accounts with 30,635 cases, followed by credit cards with 24,402.

Of the latter figure, 13,584 complaints were due to “unaffordable/irresponsible lending”, compared to just 3,723 in 2022/23.

Meanwhile, fraud and scam cases rose by a fifth to their highest level, with 27,312 complaints.

The top five was rounded out by hire purchase (motor), car and motorcycle insurance, and conditional sale (motor), all of which saw a rise in complaints in 2023/24.

The FOS upheld an average of 37 per cent of the complaints it resolved in 2023/24, up slightly from 35 per cent from the previous year.

“It’s always concerning when you see cases rise so significantly, particularly when so many people are struggling in the current economic climate,” said Abby Thomas, chief executive of the FOS.

“Whether someone is the victim of a fraud, struggling with credit card debt, or having issues with their overdraft, they deserve support and understanding from their financial provider.”

A UK Finance spokesperson commented: “Credit card companies and lenders must comply with strict regulatory rules to assess whether lending is affordable, and they also provide a wide range of support to anyone concerned about their finances or repayments.

“Meanwhile, the financial services industry prevents over £1bn of fraud taking place every year, and is currently the only sector which reimburses victims.”