FOS complaints on the rise – is enough being done?

The Financial Ombudsman Service (FOS) has recently published its yearly complaint data, revealing that complaints regarding fraud, scams, current accounts and credit cards between July and September 2024 hit record levels, rising more than 50% compared to the same period in 2023. The data provides a breakdown of the areas where complaints appear to have increased the most.

The data

In the three months between July and September 2024, the FOS received 73,692 new complaints. In the same period in 2023, 46,716 complaints were received - an overall increase in total complaints of 58%.

The FOS breaks down this data into the top five most complained about products:

• Credit cards: 22,366 complaints were reported in Q2 2024, compared with 4,505 complaints reported in the same period in 2023.
• Hire purchase (motor): 11,817 complaints were reported in Q2 2024, compared with 4,622 complaints reported in the same period in 2023.
• Current accounts: 9,186 complaints were reported in Q2 2024, compared with 7,880 complaints reported in the same period in 2023.
• Car or motorcycle insurance: 3,386 complaints were reported in Q2 2024, compared with 4,036 complaints reported in the same period in 2023.
• Electronic money (e-money): 2,196 complaints were reported in Q2 2024 compared with 1,340 complaints reported in the same period in 2023.

Complaints have reached record levels both overall and for specific products, with multiple categories showing dramatic increases in only a year. The most significant increases are in relation to credit cards and hire purchase agreements, which have risen by 496% and 255% respectively over the last year. Complaints relating to current accounts, while not increasing as dramatically, have nevertheless reached their highest quarterly levels recorded to date.

There is also a significant increase in fraud and scam cases. The FOS has stated that a significant number of these complaints relate to fraud and scams. In Q2 of 2024, the FOS received 9,091 new fraud and scam complaints – a 45% increase from the 6,264 complaints received in the same period in 2023. The question is: why this is happening?

Looking beyond the figures

The publication from the FOS along with its data, sets out why people are complaining about various products. Generally, the complaints received by the FOS can be broken down into two categories, complaints regarding fraud and scams and complaints regarding customer service.

Social media and modern-day fraud

When it comes to current accounts, the FOS is seeing a large number of fraud and scam complaints. It considers that the reason for the increase in complaints is in part due to the increasing complexity of current account fraud. Fraud in general is becoming rapidly more complex, with sophisticated schemes such as multi-stage frauds where funds pass through several banks before reaching the fraudster, becoming more common. This is particularly used in cryptocurrency investment scams and so-called 'safe account' scams where people are cold-called by a fraudster posing as a trusted entity, such as a bank, and convinced to transfer money. The FOS has also stated that the most common type of fraud or scam complaint received relates to authorised push payment (APP) – these are cases where consumers inadvertently make an online transfer to a fraudster.

Unfortunately, while the Financial Conduct Authority (FCA) has been particularly active in increasing regulation this past year, it has not managed to keep up with the pace of emerging technologies. Social media is one example. Statistics previously revealed by the FCA showed that more and more young people are not seeking financial advice through regulated independent financial advisers, but are turning to social media and streaming platforms which offer access to individuals purporting to offer advice for free. The problem with this, of course, is that many of these individuals offering 'advice' are not regulated which can lead to individuals advising young people to partake in high-risk investments that promise unrealistically high returns with no recourse. It is not surprising that this may lead individuals to a point where they are bringing complaints to the FOS.

Crypto assets (crypto) are another area where the FCA has yet to keep up with the new ways in which people are being defrauded. Crypto is nothing new, though there remain individuals who are convinced to buy unstable forms of cryptocurrency, where unrealistically high returns are promised. While it seems crypto has become the favoured investment for younger people, the FCA has not yet finalised regulations for such assets and does not plan to until 2026. Again, with social media becoming an increasing part of people's day-to-day lives, and online financial 'influencers' promoting risky crypto on their platforms, it is not surprising that the levels of complaints the FOS is receiving are increasing.

Another rapidly evolving area requiring robust regulation is artificial intelligence (AI). Among the most common consumer fraud complaints are APP (authorised push payment) scams and safe-account scams, both designed to deceive victims into believing they are interacting with a trusted individual. Unregulated AI amplifies this risk. Fraudsters can already spoof phone numbers, but AI technology takes their schemes further. AI voice-cloning allows them to replicate the voice of a trusted person, AI chatbots can mimic conversations with banks, and deepfakes can manipulate images to mislead consumers. Despite these risks, the FCA has yet to take substantive action to regulate these technologies, instead encouraging regulated firms to harness AI to combat fraud.

All of these emerging and developing technologies contribute to the problems consumers face in trying to avoid fraud and the challenges faced by businesses to ensure that adequate warnings are given and protection provided. Signposting that consumers should be wary may not be sufficient in combatting this problem, and the FCA and FOS need to work together with firms to create a realistic way forward to protect consumers whilst allowing firms to conduct business without undue restraint and acknowledging that these technologies are not going anywhere.

Customer service

Beyond complaints relating to fraud and scams, the data shows that consumers are complaining more generally about the level of service they are receiving. Current account complaints largely concern customers who either fell victim to scams (and as discussed above, consider that they should have been better protected) or feel the level of service they receive is lacking. Complaints regarding credit cards follow the same pattern.  A vast majority of complaints relate to a perceived lack of responsibility on the part of the financial institutions – with customers feeling they were offered unaffordable lending and that these providers should have intervened over persistently high credit balances, high credit limits or provided lower interest rates.

The current economic climate is not positive for the average consumer. Fraudsters aside, the cost of living crisis, inflation rates and high mortgage rates are all realities that plague the average person in Britain today. There is perhaps a perception that financial institutions should be doing more to look out for their interests. This has only been heightened by the numerous FCA publications regarding its new Consumer Duty making it clearer than ever that businesses need to show that they are not only acting in the best interests of the customer but also providing them protection where needed. The Consumer Duty has now had over a year to bed in, but it is clear that this is an ongoing process and financial institutions and advisors need to ensure that the average person is better informed about what is happening to their finances.

Summary

The FCA Consumer Duty has reminded businesses of their obligations to consumers. However, the evolution of scams and the increased use of AI represent ongoing challenges. The increase in complaints in general shows that consumers will look to recover any lost sums regardless of the relative culpability of their financial institution or advisor (perhaps not surprising in the current economic climate).  The FCA addressed the social media issue and released guidance to remind online influencers that they will still fall within FCA jurisdiction if they are purporting to offer advice, however, the problem persists. Beyond this, the FCA needs to look towards the future and address the reality that as technology develops, so too do the methods used by fraudsters to develop increasingly complex scams.

This article was originally published in Law360.