As expected, the financial impact of the pandemic is also felt in some of the trends these statistics reveal. This is also the first report in years not totally dominated by PPI claims following the August 2019 deadline for new complaints. Unsurprisingly, PPI numbers saw the biggest drop (3.85m in H2 2019 to 1.09m in H2 2020) as companies work through the final backlog of claims.
However, even excluding PPI, the industry still experienced a massive 20% drop in total complaints volumes in H1 2020. We look at how the pandemic has had an impact on the behaviour and attitudes of both companies and consumers when it comes to complaints.
Companies are taking their time, and a risk
One area of concern for firms is an increase in the number of complaints breaching the 8-week resolution timeframe stipulated by the FCA. The cross industry increase from 13% to 16% continues a steady upward trend since H1 2019 that can have serious implications for the offending companies. Nor can this be blamed on PPI figures as even removing these reveal breach rates of 10% on average, with investments and pensions companies faring far worse at 14% and 15% respectively.
Whilst the H1 2020 figures could have been impacted by the huge operational challenges companies facing in shifting their staff to a working from home model, the fact that the increase predates the pandemic indicates an underlying problem. This could be processes, people, systems or data that are not performing as they should be.
With the 8-week closure window a key metric for FCA reporting, and the implications for FOS escalations that cost a company time, money and reputation, this increase in breaches should be a serious red flag to affected organisations.
Consumer Credit under the spotlight
Consumer credit was the only sector to see an increase in complaints, up by 34% on the previous period. Given the backdrop of uncertainty and income shocks that the country experienced in the spring, this is perfectly understandable. The consumer credit sector has clearly borne the brunt of financial worries as people struggled to make ends meet.
Many consumers will have turned to high-cost, short-term lending as an emergency measure. However, these providers have themselves been under pressure to change the criteria against which they lend. As they fall further under the FCA’s remit and more responsible lending practices are enforced, many firms will have likely had to turn consumers away.
An anomaly in the consumer credit complaints numbers is that fact that debt collection firms have seen a 35% drop in complaints.
This is likely due to the many initiatives rolled out by regulators and government around providing greater forbearance in collections activities, and a more understanding approach to financial hardship and debt resolution during the . This may have led to fewer debts being passed onto debt collection agencies in the first place, as well as all firms showing greater tolerance in their approach to collections activities.
Is this a cultural shift that’s here to stay?
With financial services firms taking a more personal, proactive and considerate approach to dealing with consumers, particularly vulnerable customers, during the pandemic, it is no surprise that complaints have reduced. The sense of “we’ll get through this together”, combined with the introduction of many support schemes such as payment holidays, has turned what has sometimes been a somewhat antagonistic relationship into something much more friendly.
This change in approach has not just been limited to consumer credit and debt management firms as the tone of customer communications from all financial services companies has undergone a significant shift in since the first lock-down back in March 2020.
But is this change a short term “cease fire” or a long-term shift that will last once the pandemic (finally) ends? With vaccines being rolled out, people are looking to an end in sight and return to our “old normal” rather than the “new normal” we adapted to in 2020. However, many companies could discover that this shift in tone and approach may be of mutual benefit in customer service long term with more loyal customers who engage with them more positively.
Looking ahead to 2021
As we all eagerly put 2020 behind us, what trends are we likely to see in 2021 and future FCA reports? Our team previews the challenges financial services firms could be facing this year.
- Payment Holidays – These have been a financial lifeline for many people throughout 2020, but many consumers may have also taken these out unnecessarily. The fact that payment holidays were applied to many products for the first time, and the speed with which they were rolled out and communicated, could open firms up to remediation claims once the long-term impact to the consumer becomes clear.
- Vulnerable Customers – The criteria for identifying vulnerable customers has changed dramatically throughout the pandemic, as has the number of people suffering financial vulnerability. With the economic impact of COVID-19 likely to be felt far into 2021 and beyond, firms are going to have to rethink the resources they devote to dealing with many different types of vulnerable customers.
- Consumer Credit – As the increase in financial vulnerability amongst consumers combines with more stringent lending regulations in this sector, how do these firms adapt both their lending process and debt collection activities?