Jonathan Britten
Consulting & Implementations Director
With the Consumer Duty deadline of 31 July looming ever larger on the horizon, the latest complaints analysis from the Financial Conduct Authority (FCA) provides another nudge for those working hard to readjust to consumer circumstances and regulatory expectations.
However, the latest statistics also suggest that many financial services firms are continuing to firefight by focusing on processing complaints rather than addressing the root causes that create them in the first place. That is a risky approach in the context of Consumer Duty. From 31 July, there will be a very clear focus on good customer outcomes and the expectation that firms both identify the source of any problems and take preventative action.
As most in the industry will be well aware, the FCA continues to push for a supportive approach to the growing number of vulnerable consumers. According to the FCA’s Financial Lives survey (published at the beginning of the year), the number of adults who missed payments on domestic bills or credit commitments rose from 4.2 million in May 2022 to 5.6 million in January 2023, and around half of the population are believed to fall within at least one of the categories of vulnerability at any given time. Better root cause analysis around many of the issues exacerbated by the cost of living crisis has the potential to make huge savings for firms in terms of time and resources.
FCA Data Presents A Mixed Picture
The latest FCA statistics do show firms are making progress in some areas, but it’s a mixed picture. The FCA reports an overall 6% decrease in consumer complaints for the second half of 2022, falling from 1.91m to 1.79m. However, there is a general reduction in other complaints closure metrics (eight-week closure (8WK) performance is stagnant and three working day closure (3WD) performance is reducing) so, although volumes are lower, the picture is not generally positive.
The biggest drops in complaint numbers showed up in banking and credit cards (5%), insurance and pure protection (10%), and investments (10%). Other areas struggled. The biggest increase in complaints came in home finance, reflecting the pressure many consumers are facing from increases in mortgage repayments. Complaints rose by 14% – from 88,514 in 2022 H1 to 101,331 in H2. There were also significant increases in Savings (up from 51,415 to 69,256 – 35%) and Travel (up from 22,261 to 31,987 – 44%).
Here are some further observations from my colleagues, sector by sector:
- Banking
While Banking showed a decrease in complaints, and is still the best-performing category overall, closure performance has been showing signs of deterioration across core metrics for the last two reporting periods. This could be an early indicator that, while volumes are dropping, service levels are worsening.
- Home Finance
At 14%, the increase in complaints in the second half of 2022 for Home Finance was marked. There has also been a deterioration across core metrics, increasing carry forward, uphold, and 8WK breaches.
- Insurance
This product area has seen a slightly higher than average drop in complaints (7%) but there has been a significant increase in carry forward. The overall closure rate is erratic with a 9% drop in 3WD but a small improvement in 8WK breaches (reducing to 7.5%). Overall, this indicates a worsening position for the sector, indicating it may be struggling with the volume of complaints or that complaints have become more complex.
- Consumer credit
Volumes continue to reduce, down a further 3.4%, plus a significant reduction in the uphold rate, which is now down to an industry best of 36.9%. This indicates a continued slowdown in Irresponsible Lending (IL) complaints that previously hit the sector hard. There has also been a significant reduction in the uphold rate, reducing to 36.9%.
Having said that, the sector is still running with a backlog of circa 278,000 complaints. Furthermore, significant scrutiny is now focused on motor finance, with third party agencies ramping up consumer complaints over sales commissions – a problem dubbed by some in the media as ‘the new PPI’. As car finance specialists will be all too aware, this is definitely an area to watch.
- Investment
There have been further small improvements in closure performance. But, despite reducing complaint volumes and a small improvement in closure performance, the overall performance is still much lower than financial sector averages.
- Pensions
Against the overall trends, consumer complaints in Pensions have increased for the second consecutive period, and this is the worst performing sector. Volumes appear to be manageable as there is no carry forward, but the closure performance continues to deteriorate, with very high uphold and 8WK breach rates, and low 3WD performance. Issues seem to persist in terms of more complex complaint types and BAU operational issues that can impact a firm’s ability to close within the prescribed time.
The Role of Root Cause Analysis
With the exception of Consumer Credit, the overall uphold rate remains very high at an average of 61.5%, and that has proved an increasing trend post PPI. As mentioned earlier, this indicates that many firms remain focused on processing complaints rather than addressing the root causes that create them. There is a significant opportunity for firms here. Better use of root cause analysis stamps out recurring problems, brings a clear competitive edge and is likely to prove critical in successfully meeting the obligations of Consumer Duty. Do get in touch with us if you would like to find out more.