A wave of scandals and shocks, from PPI to data breaches, have tainted the public’s opinion of high-street banks. Greg Noone talks to Caroline Wayman, chief executive of the Financial Ombudsman Service, about her experience in battling industry misconduct and how the sector is on a mission to re-establish its old lustre.
Until news of the wider scandal broke nationally, Beverley, a social worker living in London, never suspected that she would be among the many thousands of customers who had been mis-sold payment protection insurance, or PPI. Having taken out a personal loan in the past, she got back in contact with her provider and asked for a breakdown of how the fees had been calculated. When Beverley failed to receive anything close to what she had requested, she contacted the Financial Ombudsman Service (FOS) and requested the agency investigate the matter. Within eight weeks, the FOS's conclusions led to her being awarded £3,000 in compensation.
Since the 1990s, PPI has been sold alongside credit products of all types. However, when it emerged that the product had often been sold to customers without their knowledge, major high-street banks were forced by regulators to shell out billions of pounds in compensation. Yet, the sheer scale of the scandal has meant that Beverley's story - one of four video testimonials on the work of the FOS - is, according to the conclusions of a recent report published by the House of Commons Public Accounts Committee, a best-case scenario for PPI claimants.
In May, the committee stated that while the arbitration service provided by the FOS was "straightforward and free", over 80% of the claims were being made by claims management companies on behalf of consumers. The net result has been approximately £5 billion being sucked out of the £22 billion pot of compensation reserved for customers since April 2011. Furthermore, a "large backlog of PPI claims" has meant that, in some cases, consumers have had to wait up to two years for a firm decision, which the committee argues has effectively made the FOS part of the problem.
Speaking in March, chief ombudsman Caroline Wayman was unequivocal in laying out how the organisation has been cleaning up the mess left behind by PPI.
"I'm very hopeful that we're getting towards the later stages but I do think we expect it'll take some time yet to clean up what has been the biggest mis-selling scandal in history," she says. "I mean, to give that some context, we've had about 1.5 million cases - actual cases, not just people phoning up and asking if we might be able to help, but those who have then brought an actual case to us that we've needed to decide - and we've worked through 1.3 million of those."
At its height, recalls Wayman, the FOS was burning through 12,000 PPI-related cases a week. Last year, half of the complaints the service dealt with were still related to the scandal. However, the volume of such cases had fallen by approximately half from the year before that. "There's still a way to go," admits Wayman. "It's still really important that we get really good cooperation from banks and businesses that sold PPI, and from claims management companies that bring complaints on behalf of people."
Wayman began her career in the legal profession before joining the former Insurance Ombudsman in 1999. Wayman stayed with the organisation as it evolved into the FOS the following year. Appointed chief ombudsman in July 2014, her tenure has largely been defined by the service's ability to close the door on the toxic legacy of PPI, the rise of pay-day lenders and how to approach the inconsistencies in conduct that have risen with the technological revolution that continues to transform retail banking as we know it.
"In effect, we provide a free, independent service for people to test whether or not what they've been told is fair," Wayman explains. "We look at circumstances, we hear from both sides and get whatever evidence we need to be able to decide. Then our job is to make a decision that's fair and reasonable."
The service does not have the full legal clout of the Financial Conduct Authority, which retains enforcement powers. Rather, the FOS is only able to investigate a complaint made by a consumer and officially recommend a decision on the matter. Only if the complainant agrees with the organisation's conclusions does it then become legally binding. "Most of what we do is about problem solving, and just getting to the heart of what's really troubling people," says Wayman. "Our main role is really just to put things right when they have gone wrong and to explain that, sometimes, actually what has happened is fair."
In practice, this means navigating a maze of transactions and contracts that represent the full extent of the financial services industry in the UK. In fact, the FOS's caseload provides a useful indication of the areas where the sector is failing consumers, as well as the true extent of abuses widely regarded to have had more impact than they actually have. A case in point is the pay-day loan industry, which until now has blossomed thanks to a combination of lax regulation and a high-demand for ultra-short-term credit facilities that high-street banks have, hitherto, been reluctant to provide.
"Compared with something like PPI, it's a much smaller proportion of our overall caseload," says Wayman. "In pure numbers, it's quite different. But we have been seeing a growing number of both enquiries - that is, people phoning us up and asking us questions - and actual cases featuring pay-day lending. It's quite a bit up on what it was, and I think it is an area in which we do see cases where there have been consumers who haven't been treated fairly and where we therefore do make an award more often than we would perhaps have done so in other areas of our work."
Heart to heart
During her time as chief ombudsman, it has been unavoidable for Wayman to form a few opinions along the way about the attitudes financial institutions, particularly banks, take towards customer service. "I think there is a genuine willingness to want to learn from the mistakes of the past and to put customers much more at the heart of their organisations," she says. "But I think what I would say is that does take time, consistency and you have to really mean it."
In February, the FOS published its complaints figures for the second half of 2015. Out of the top 15 firms that attracted the highest number of new cases to the FOS, five of them were banking institutions. Bank of Scotland alone would attract 22,089 new cases, 78% of which were related to PPIs. Other prominent high-street institutions, including Barclays, Lloyds, HSBC and Santander, would also attract a flurry of complaints on everything from mortgages and home finance, to investments and account issues.
Overall, however, the number of complaints that have been made to the FOS have begun to taper off from the all-time high witnessed in 2013-14 of 512,167 cases that entered the formal adjudication system (as opposed to the number of initial enquires, which have also dropped). It will be some time though before the FOS even has a chance to return to the working rhythm it sustained before the financial crisis of 2008, not least given current public dissatisfaction with high-street banks. And perhaps it never will. In January 2014, a YouGov survey found that half of all respondents would switch to another bank if they had the chance.
However, it has been far harder to grasp at the root of why the public has been so indifferent to the lengths banks have gone to in improving the way they interact with their customers. "It's difficult to describe what the public's perception might be because I suspect that's probably quite mixed and dependent on the experience people have had," says Wayman. "From the conversations I have had with some of the senior people in retail banks, I think there is a genuine willingness to want to learn from the mistakes of the past and put customers much more at the heart of what they do as an organisation.
"Obviously, you need policies and procedures for the purposes of ensuring consistency, but I think if people who are on the front line every day are talking to customers, dealing with their issues, being able to access the information they need but also being given a bit of autonomy to make sensible choices to do what's right for the customer, that is one of the things that can have the single biggest impact."
It's an evocative image, one that almost conjures up sepia-toned memories of retail banking long before the 2008 financial crisis, when the responsibilities of personal banking were mainly in the hands of a cashier or a judicious branch manager. Not that this is what Wayman has in mind but aspects of that model - most notably, the idea of cultivating a personal relationship with the consumer - retain a great deal of relevance, even as mobile and online banking continue to transform the industry.
"It's kind of the best of what we might consider a traditional model of very much thinking about relationships and people, but actually doing that in a way that technology supports and enables," says Wayman. "And I do think that technology actually, in many ways, can really support that. It doesn't have to be a choice between that or talking to a representative of the bank, but it's about the right point in time: when and how do you make sure that it's a human experience and that people are really feeling listened to?
"I think one of the consistent themes for us is that people, by the time they come to us, very often feel that they haven't been listened to, that they've had the standard response, and that actually if someone had taken a little bit of time and trouble earlier on, that it wouldn't have needed to come to the ombudsman."