The PPI warning sign was on the door a long time ago

The publication last week of the latest Financial Ombudsman Service (FOS) data on complaints sparked the usual ruckus, and understandably so. New cases for the FOS soared by 26 per cent in the year to March 31 2011 and 51 per cent of new cases were solely about Payment Protection Insurance (PPI). While these figures alone provide food for thought, the remainder of the iceberg lurks ominously below the surface. It must be remembered that these figures from the FOS only show the number of people who had exhausted their own banks’ complaints process and felt it necessary to take things to a higher level.

Thinking about the PPI issue first of all, banks certainly have a challenge on their hands here. A careful balance needs to be struck between time spent evaluating the scale of the problem and actually taking action. Banks need to ensure they treat each customer fairly but also each on their own merits. In doing this, they are having to balance the servicing of inbound complaints with outbound work to ensure all customers who were mis-sold are contacted. Some of these people may no longer even be customers, which presents further challenges. An industrial scale operation is needed and in some cases it simply may not be possible to calculate an accurate level of detriment. Predictive modelling to aid decision making, combined with use of historic data, can help banks ensure fairness across the board.

Moving forward, however, there is a better approach. Peaks in complaints are not rare; think about pension mis-selling, overdraft charges… These peaks are all generally preceded by negative noises which are today far easier to pick up on and measure, thanks to social media. Arguably the warning sign about PPI was on the door a long while ago. What we should be doing now, in order to pre-empt and prepare, is looking for the next peak.