The financial ombudsman's workload may have broken through one million cases last year, but there are signs that some parts of the financial services sector are starting to offer a better service to clients.
Complaints about payment protection insurance (PPI) accounted for just over half (51 per cent) of new cases, as revealed in the ombudsman's annual report for 2010-11, which was published on Wednesday. But now that the banks have caved in, setting aside an estimated £9bn to pay compensation to customers who were mis-sold PPI policies, it could be that some will take steps to avoid repeats.
The new chief executive of Lloyds, Antonio Horta-Osorio, is aiming to cut the number of complaints it receives as a way of demonstrating that the group, comprising Lloyds and Halifax/Bank of Scotland, is "committed to improving the quality of service we give our customers".
Natalie Ceeney, the chief ombudsman, is constantly meeting bank and other chief executives and says that several are similarly committed to changing their cultures to reduce mis-selling and improve the handling of complaints. When an organisation decides to take this step, she says that the turnaround "can happen pretty quickly", within a matter of months.
While the number of cases that the ombudsman had to resolve through its adjudicators went up 26 per cent in 2010-11, there were areas where the figures fell. Complaints about bank account management and other general banking issues fell 9 per cent.
Health insurance grievances were 13 per cent lower. "The travel insurance industry did very well," says Ms Ceeney, referring to the fact that only 700 cases had to be decided in relation to the volcanic ash problem of a year ago which affected more than a million airline passengers.
Essentially, the difference between organisations which receive high numbers of complaints and those that do not is one of culture, says Ms Ceeney.
"There are some very 'tick-box attitudes' to compliance in some of the banks," she says. "In those places, staff are asking themselves: 'What do the rules allow me to do and what can I get away with?'."
This would have been the approach behind the PPI mis-selling scandal which may have affected more than three million people. Those consumers typically paid more than £2,000 in premiums for insurance policies which were of little use to them. On the other hand, Ms Ceeney points to firms which deliver good customer service and have lower complaints rates. These, she says, "treat complaints as insight, showing them how they can improve".
Just over half (51 per cent) of complaints received by the ombudsman last year came from four financial institutions - the "big four" banks. Even here, however, the figures varied substantially from group to group. Lloyds TSB won only 26 per cent of the cases decided by the ombudsman in the second half of 2010. At the other end of the spectrum, HSBC won 73 per cent. In between were Royal Bank of Scotland, with 40 per cent and Barclays on 46 per cent.
The best performers included Guardian Assurance and National Savings and Investments (winning 87 per cent of cases), Bradford & Bingley (86 per cent), Yorkshire Building Society (85 per cent), Equitable Life (82 per cent) and the Prudential (80 per cent).
Winning a high proportion of cases before the ombudsman is a good sign because it means that the organisation probably has a fair internal procedure for handling complaints. "In every sector, I see really good and really poor," says Ms Ceeney.
If consumers want to avoid organisations which offer poor service, often mis-sell and handle complaints badly they can look at the analysis of upheld complaints published every six months by the ombudsman's office. There are also other signs. Paying staff incentives to sell certain products (a common feature for bank workers) often appears to result in poor selling; bank employees were widely incentivised to sell PPI, for example. "People only ever pay bonus incentives because they think it will change behaviour," says Ms Ceeney.
Specialist firms are often, but not always, better at selling products correctly. "PPI was often cross-sold," Ms Ceeney points out. And many parts of the insurance industry have lower complaints rates than other sectors such as banking. This may be because competition is so intense. While people frequently change their household insurance provider, they are much less likely to switch banks.
But another, unexpected, factor could start encouraging financial institutions to stop mis-selling. Younger people who use Twitter, Facebook and other forms of social media often inform hundreds of their contacts if they have been mis-sold, while their parents might retell the story to only a handful of friends. "A student will probably Twitter it and put something up on YouTube and Facebook," says Ms Ceeney. "The potential for dissatisfaction to go viral is huge."
And as many twentysomethings have 300 or 400 Facebook friends, for instance, word can get round fast if they are unhappy with their bank. The Ombudsman Service itself is working on new ways to communicate fast with this generation and, for their part, financial institutions may have to monitor the effect of Facebook and Twitter communications on their business if their service is seen to be defective.
Consumers can take complaints to the ombudsman if they are dissatisfied with the outcome of a complaint they have made to a financial institution, or if they receive no reply from it. The ombudsman gave initial advice on simple queries in just over a million cases in the year to March 2011. A fifth of those queries - just over 200,000 - turned into more fully-fledged cases for the service's adjudicators to investigate and resolve. In just over half of these applications (51 per cent), the ombudsman found in favour of the complainant and ordered the financial institution to pay compensation.
The Ombudsman Service is free to consumers. Half of cases (except PPI cases which were delayed because of a legal challenge which has now bee concluded) are resolved within three months, and another 25 per cent are resolved in six months.
However, as more firms get better at resolving cases inhouse, the ombudsman is increasingly becoming the special resolution service for complicated cases. "[On top of this] we are getting more argumentative," Ms Ceeney explains, reflecting on the growing tendency for customers and institutions to dig their heels in.
In future, it could also be that problems such as PPI mis-selling are spotted earlier and nipped in the bud by the regulator. The new Co-ordination Committee began work earlier this year, giving the ombudsman a formal conduit for such issues to the Financial Services Authority.
The City watchdog is showing signs of punishing more severely some of the perpetrators of mis-selling. Barclays was handed the biggest-ever retail fine for the mis-selling of income funds when it was told to pay £7.7m in January. The ombudsman had been given early warning signs of this problem, and dealt with 500 complaints relating to it.
When we reported on the ombudsman's annual report a year ago we spoke to Fay (not her real name) who, with her husband, was desperately trying to seek compensation for an allegedly mis-sold mortgage payment protection plan.
The couple, who had a young daughter, were borrowing from relatives because they could not afford to pay their mortgage after the husband lost his job. At the time, Fay was full of praise for the ombudsman. So how did things turn out?
"Horribly," she says. "We never got any money and me and my husband broke up." The ombudsman's adjudicator had got them to a the brink of a deal with the bank that provided the mortgage insurance. He then bowed out but, just when they expected the payment, the bank changed its mind.
The problem had come about because the bank queried whether Fay's husband was genuinely seeking new work, one of the terms of paying out the insurance. The couple were baffled by the raising of this issue as the husband was out looking and had a stack of application letters to prove it.
"It completely ruined us; took the life out of us," says Fay, who now rents a property around the corner from her husband (with whom she is still friends). He had to have an operation last year, Fay has health problems and is still waiting to receive housing benefit, which she began claiming after the couple split up on Christmas Eve.
As all the pressures on them mounted up, the couple did not get back to the ombudsman after the bank refused to pay them. Fay is now thinking of contacting the adjudicator she dealt with once again to see if he can do any more, especially now that the banks have changed their stance over PPI.
"He was fabulous," Fay says of the adjudicator. "He gave his absolute all. I would like to pursue this again. But I just got so caught up in trying to get through every day."
On the positive side, Fay's husband finally got a new job and began paying the mortgage again on their former marital home. He still lives there, but rents out a room in order to start repaying some of the couple's mortgage debts.
* Contact the Financial Ombudsman Service call 0300 123 9123, or visit www.financial-ombudsman.org.uk
* To see complaints data for individual banks and other financial institutions go to http://www.ombudsman-complaints-data.org.uk/