Complaints have risen steeply in the past year, reports Financial Services Complaints Limited (FSCL), a Financial Ombudsman Service. Complaints and disputes (cases the service formally investigates) were up by 25% and 37% respectively.
“Complaints about lenders made up the greatest proportion of complaints investigated. The increase in complaints is reflective of the challenges in the wider economic environment. Experience shows that when interest rates and the cost-of-living increase, complaints about loans tend to go up” says financial ombudsman, Susan Taylor.
Ms Taylor says the impact of large weather events, increased awareness of alternate financial dispute resolution services, as well as the hang over from the impact of Covid also contributed to an increase in complaints across the board.
FSCL received 1,349 complaints, up from 1077 in the previous year. Of the 274 cases formally investigated, the largest proportion of complaints were about consumer credit products at 31%, followed by credit cards at 7% and mortgage loans at 6%.
“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, particularly when times are tough” she explains.
Ms Taylor warned consumers not to be tempted to chase big investment returns when times are tough.
“It can be tempting to look to get-rich-quick schemes when under financial pressure. However, if an investment promises high returns, it likely carries a high level of risk,” explains Ms Taylor, adding that it is important for consumers to ensure an investment product is suitable for them.
In a recent case note, Mei lost over $150,000 when she failed to close some of her trades on a trading platform she was using. Mei’s complaint was about contracts for difference, which are commonly known as CFDs. CFDs allow an investor to speculate on the change in the value of an underlying asset, such as shares.
CFDs are a leveraged product. This means the consumer only has to deposit part of the value of the trade. The remaining part of the trade is leverage. Leverage allows the consumer to magnify their returns, but losses are also magnified. The higher the leverage, the higher the risk to the consumer.
Mei complained that the trading platform had acted negligently and had breached the Financial Markets Conduct Act 2013 (the Act) by not disclosing material information about risk.
The trading platform said they were not liable for Mei’s losses. She was responsible for managing her account, including monitoring market events, and managing her exposure.
The trading platform also said they had disclosed the high risks of trading CFD products, and they did not accept that they had breached the Act.
FSCL did not uphold Mei’s complaint.
“The trading platform had clearly disclosed the risks of trading. This included disclosing that their products were high risk, that losses may exceed the money Mei had deposited, and that trades may be automatically closed if the trading account balance fell below the close-out level,” explains Ms Taylor.
Ms Taylor added that Mei knew, or should have known, from the information the trading platform gave her that CFDs are high risk products and that she may lose more than the funds she had deposited into her account.
“This case highlights the importance of a consumer fully understanding the investment product they are using. It is always advisable to seek independent advice when looking at investment options.”
You can read the case note here.