Banks hit by record number of complaints

A record number of customers have complained about banks this year, enraged about the misselling of payment protection insurance (PPI), which threatens to become one of Britain's worst personal finance scandals.

The Financial Ombudsman Service (FOS) has received 84,212 new complaints about financial providers between January and June, up 3 per cent on the final six months of last year.

Sold to cover loan payments, PPI was the single most complained about problem, generating 30,000 new cases, three times more than the combined totals for mortgages, investments, and pensions.

Britain's five biggest banking groups – Lloyds, Royal Bank of Scotland, HSBC, Barclays and Santander – attracted 47,507 complaints, of which 40 per cent were about general insurance, the category which includes PPI. The insurance covers default on mortgages, loans and credit cards, but is riddled with exemptions which make it hard to claim.

Lloyds Bank was the most complained about institution. In July, Lloyds became the first banking group to stop selling PPI. A spokeswoman for Lloyds, which is 43 per cent owned by the taxpayer, denied that its performance was poor. She said: "The vast majority of our customers are happy with the service we provide and this is reflected in the low number of complaints we receive relative to the high number of accounts our customers hold."

The Financial Services Authority expects 2.75 million complaints about PPI to hit banks in the five years to 2015, with compensation to customers potentially topping £4bn. The number of new cases, 81 per cent of which are upheld by the FOS, means PPI could eventually match the mis-selling scandals of the 1990s, when banks had to pay out up to £8bn for wrongly transferring workers out of occupational pensions and £1bn for touting underperforming endowment policies.

After Lloyds, the most complained about bank was Barclays, with 7,991 cases – of which 2,221 were about general insurance – followed by the Bank of Scotland, part of Lloyds Banking Group, with 6,211.

Some 4,881 protests were made about Santander, the Spanish banking giant, which has been the subject of concern about quality of service since its takeovers of Alliance & Leicester and Bradford & Bingley two years ago.

HSBC, NatWest and Royal Bank of Scotland received the fourth, fifth and six most complaints, 3,286, 2,910 and 2,250. The credit card firms MBNA received 1,976 complaints and Capital One 1,662. Nationwide Building Society and the Co-operative Bank, which operate a mutual and co-operative model respectively, attracted far fewer complaints: 1,104 and 697.

The proportion of complaints upheld dropped from 53 per cent to 44 per cent, but FOS explained that the figures were skewed by the closing of 15,000 cases about unauthorised overdraft charges after a legal ruling in November 2009.

Among the biggest providers, Barclays lost the highest proportion of cases, 61 per cent, but some smaller specialist firms were found to be in the wrong almost all the time. All protests against the insurance provider Eisis, 99 per cent against the loan firm Ocean Finance and 90 per cent against Black Horse (also owned by Lloyds) were settled in favour of the public.

Customers must go through the complaints procedure of their financial provider before making a free complaint to the FOS. Mike O'Connor, chief executive of Consumer Focus, said it was clear that banks were failing to deal properly with disgruntled customers. "Consumers want companies to take complaints seriously and put problems right first time. These results suggest that too many companies are not taking complaints seriously and are content to leave [consumers] to pursue problems with the Ombudsman instead," he said.

The personal finance campaigner Martin Lewis, of Moneysavingexpert.com, said: "The great shame is that less than 10 per cent of people take their case to the Ombudsman. The message here is that when you complain, expect the firm to say 'no', but ignore that and go to the Ombudsman."