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Consumer credit complaints dominate this year

Consumer credit complaints have overtaken travel insurance complaints in the last year, reports Financial Services Complaints Limited (FSCL), a Financial Ombudsman Service, in its latest annual report.

Commenting on the release of their annual report today, “The increase in complaints is reflective of the challenges in the wider economic environment,” says Ombudsman and CEO, Susan Taylor, adding that as history has shown with the global financial crisis in 2008, an economic downturn inevitably means an increase in complaints.

“At times of economic turbulence with consumers facing increasing pressures and rising costs, maintaining consumer confidence in the financial markets is more important than ever.”

“Access to effective dispute resolution plays a crucial part in maintaining confidence and consumers trust in the financial organisations and advisers that they interact with on a regular basis.”

“In line with trends we saw last year, in 2022, there was a 15% increase in complaints with 1,077 received, up from 931 in 2021,” Ms Taylor explains.

Of the 214 cases formally investigated, the largest proportion of complaints were about consumer credit products at 29%, followed by mortgage loans at 10% and credit cards at 9%.

A case study about consumer credit in the annual report, demonstrates how a lender was able to work with a consumer who found themselves in financial hardship because of the impact of Covid- 19 and an abusive relationship.

Kate found herself unable to pay a debt consolidation loan after her work hours were reduced after the Covid- 19 2020 lockdown. Her husband, from whom she was separated, had also forced her to take on more debt.

After contacting a financial mentor for help with her finances, the financial mentor raised concerns that the lender had failed in their responsible lending obligations by under- estimating Kate’s expenses for food in her budget when they approved the loan in the first place.

FSCL noted that Kate had met all the loan repayments until Covid-19 intervened and that the debt consolidation had improved her financial situation. It was determined that other factors, like Covid-19 and the abusive relationship, were the main causes of Kate’s current financial difficulty.

In the end, the lender agreed to accept repayments of $300 a month until November 2022, when the lender would then reassess Kate’s financial position, with a view to Kate increasing the repayment amount.

“We acknowledge that hardship applications can be challenging, especially when a lender feels the borrower has brought the situation upon themselves by incurring further debt,” says Ms Taylor.

“However, when assessing a hardship application, a lender should take the borrower as they find them and work with the borrower to find a durable, workable solution. We were pleased to see a lender asking for all the necessary information and carrying out a robust assessment before offering a solution that combined both a reduced interest rate and repayment amount that made repaying the loan affordable for Kate.”

It has been a big year for FSCL, which gained the right to use the Ombudsman title.

“The title carries considerable mana and, in my view, acknowledges the work FSCL does in providing a world-class dispute resolution service”, says Ms Taylor, adding that given FSCL meets all the criteria of an Ombudsman-including the principles of fairness, independence, accessibility, accountability and efficiency. “It was important for FSCL’s name to accurately reflect the role the organisation plays, therefore improving trust in FSCL’s service.”

You can access the Annual Report here.