Mortgage lenders have been accused of going through the motions with respect to compliance by the FCA. A recent review of complaints handling procedures by Non-deposit Taking Mortgage Lenders (NDTMLs) and Mortgage Third-party Administrators (MTPAs), found complaint recording was inconsistent, was treated as a ‘tick box’ exercise, and failed to implement improvements following verdicts by the Financial Ombudsman Service (FOS). The report concluded that lenders were not putting consumer interests first, potentially putting their customers at risk of harm, and identified key areas for improvement.
Let’s explore each of these in turn, starting with complaint data. While the report acknowledges that complaints were recorded it found that the underlying reasons were often not assessed. Senior management reports tended to feature operational data rather than Management Information, preventing the lender from carrying out Root Cause Analysis (RCA) and getting to the bottom of issues. This had the knock-on effect of preventing assessment of the quality of the complaints handling procedure. As a result these lenders were trapped in a repeat cycle which would be hard to break.
There was also found to be an “over reliance on policies and processes” which saw firms use a tick-box approach to compliance. Inevitably this led to square pegs being fitted into round holes, so that the nuances of individual customer cases were not always accommodated. The FCA stated this demonstrated a failure to “exercise judgement and put customers’ interest first”, which could place lenders in direct contravention of TCF Principle 6 which states ‘A firm must pay due regard to the interests of its customers and treat them fairly’. So the processes being used to categorise complaints may well have been too simplistic in some cases.
Acting on information
With respect to investigations carried out by FOS, the review found that the decisions handed down were not being assessed and used to revise policies and procedures. Complaints about mortgages accounted for five percent of complaints received by the regulator during the second quarter of 2018/19, equivalent to 3,845 complaints, 26 percent of which were upheld. The most common complaints made to the FOS concerning mortgages are typically around how they were administered, associated charges, transactions, financial difficulties, and the handling of mortgage arrears.
Fundamentally, the review suggests that a number of aspects of the complaint handling process within the sector could benefit from improvement. To address these issues, the FCA has outlined eight areas for attention as follows:
- Management Information: firms need to ensure the information collected and analysed is accurate and relevant. This should be used to measure TCF and identify ways to improve customer outcomes
- Root Cause Analysis: firms should be able to identify and remedy recurring systemic problems using RCA ie through a process change or improvement
- Governance: firms should have processes in place that ensure RCA provides strategic purpose and is communicated to and acted upon by senior management
- Customers come first: firms must establish and maintain effective and transparent procedures for the reasonable and prompt handling of complaints. In each case, the firm should be evaluating whether the outcome and the customer’s experience could be deemed to have put the customer’s interests first.
- Consistency: firms should ensure that complaints are assessed fairly and promptly
- Accuracy: all complaints should be recorded accurately. Errors may result in poor customer outcomes and experiences and may also make it far more difficult and onerous for the firm to put things right
- Record keeping: firms should give staff internal systems and controls that allow them to identify and record complaints correctly
- Oversee regulator returns: firms must put in place processes that ensure the data in the annual or biannual returns made to the FCA is accurate
NDTMLs and MTPAs now need to take the necessary steps to implement these changes. Starting from the very beginning, they need to look at how information is captured through to how it is actioned and escalated, analysed and reported upon.
To bring this about, firms should adopt a more responsive approach to rectification and remediation. They need to provide staff with the ability to assess complaints more judiciously and enable information to be collected more methodically. This information can then be used not just to reflect on the root cause of the complaint but also whether it has been dealt with effectively.
Reflecting on the quality of the remediation process in this way is just as important and determines whether the consumer experience is a positive one or whether processes need to be changed further. It’s these elements that come before redress that the sector needs to focus on implementing effectively.
The FCA acknowledges that the NDTML and MTPA sector has overall a positive attitude to complaints handling. What’s letting it down are poor processes that mean it is at greater risk of repeating mistakes. An iterative complaint handling process would enable these firms to continually analyse and improve, and to meet its regulatory obligations, helping to break the complaints cycle it finds itself trapped in.