Banks, wake up - complaints cost more than money

Outlook The way banks handle complaints has been a running sore with their consumers for many years. No wonder, when the man in charge of dealing with them at Lloyds seemed terribly proud of the fact that 30 per cent of those it rejected were subsequently upheld by the Financial Ombudsman Service (FOS). It’s more like 70 per cent when PPI cases are included. “We are the market leader,” declared Martin Dodd, customer services director of Lloyds while testifying before the Treasury Select Committee yesterday. If you’re the market leader by dint of having nearly a third (sorry, more than two thirds) of the complaints you throw out kicked back to you, that’s a bad market you’re in.

The crux of the problem was neatly summed up by the committee’s chairman, Andrew Tyrie: he worries that complaints are in effect viewed as a business expense.

Here’s why: there is a balance to be struck between the cost of investing in systems, employees and service generally, and the cost of complaints if you don’t.

The volume of complaints the industry is currently receiving suggests that it doesn’t view their cost as sufficiently expensive to tackle the root causes behind them. And the number of cases in which the FOS ruled in favour of the complainants suggests that complaints handlers still see their role as telling consumers why they were wrong to complain.

The committee appears to hope the emergence of challenger banks such as TSB, Virgin Money and Santander might change this by offering consumers a better experience. And the Payments Council has made it easier to switch. But, when push comes to shove, will these challengers be any different? After all, Santander UK hardly has a spotless record of handling complaints.

There is, of course, an answer: increase the cost of complaints. In addition to a levy, banks currently pay £550 for each complaint that goes to the Ombudsman after the first 25. Consumers pay nothing.

If that were doubled, and a sliding scale introduced so banks, and other financial institutions, pay still more if their complaints breach certain benchmark levels, it might just serve to concentrate minds.