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28 february 2025, 08:17
In 2024, the number of consumer appeals to the Financial Ombudsman Service regarding credit institutions grew noticeably. This was reported by Chief Financial Ombudsman Yury Voronin, speaking at the annual meeting with the management of the Bank of Russia on the regulation of the activities of financial market participants. The event was held on 27-28 February. Yury Voronin spoke at the panel session “Dialogue of credit institutions with regulators. Financial system enhancement”.
As the CFO noted, it is disputes of financial services consumers with banks that rank second after disputes with insurance institutions within the Financial Ombudsman’s scope of competence. “While disputes with insurance institutions account for 86 per cent of what we handle, disputes with banks account for a little over 11 per cent. However, if we have managed to achieve the effect of the so-called “sword of Damocles” in relation to insurance institutions over the past years, i.e. an increase in the number of settlements at the claim stage, and accordingly a decrease in the number of disputes brought directly to the Financial Ombudsman, then with regard to banks, on the contrary, we were witnessing a tangible increase in the number of appeals in 2024 compared to the previous year,” Yury Voronin pointed out.
Thus, according to the CFO, the scope of appeals against banks in 2024 compared to 2023 has increased by almost 14 per cent: from 13,322 appeals to 15,156 appeals. The main growth in absolute terms is observed in the segments of lending (+14%, total 9,454 appeals in 2024) and bank accounts / transfers (+25%, total 4,132 appeals in 2024).
According to the Chief Financial Ombudsman, it is consumer credit and debiting of bank accounts that have become the drivers of growth in appeals. A significant share of consumer appeals in the lending segment addressed issues related to the refund of fees for the products offered to consumers at the time of lending, which are in fact “surrogates” of additional services provided by third parties.
The growth in the number of such appeals is directly related to the “withdrawal” of banks from insuring borrowers to providing alternative products (“surrogates”), as had been reported by the Bank of Russia in its quarterly reviews of the key performance indicators of insurers throughout 2024.
The bad thing is that such products are often associated with unfair practices towards consumers, Yury Voronin said. For instance, an independent guarantee provided by third parties and offered by banks when entering into a loan agreement has become one of the alternatives to insurance. However, unlike insurance, the independent guarantee is qualified by some banks as a service that is considered to have been rendered at the time of conclusion of the contract (also on the grounds that third parties providing such a service inform banks in response to their request that this service has already been rendered), which deprives the consumer, according to such banks, of the right to a refund of payment for it in case of refusal during the “cooling-off period”. The Financial Ombudsman rejects this approach and has always been restoring consumers’ infringed rights. In 2024, the Service revealed more than 70 cases of such unfair practices used by banks.
Another example of a “surrogate” is the so-called “servicing programmes” provided by third parties, which involve various services, including advisory services.
Banks were selling such programmes by “connecting” the borrower to them by assigning the borrower’s rights of claim under the relevant agreement or through the purchase of an option. “Connection” to a servicing programme in any of these ways is also qualified by the bank as a service provided at the time of contracting, with which the Financial Ombudsman also strongly disagreed.
It should be noted that the Service registered almost 90 cases of using such unfair practices (in addition to the independent guarantee) by credit institutions in 2024, the Chief Financial Ombudsman said.
This situation could not but contribute to the growth of citizens’ appeals to us regarding banks, however, it is not just about the number. Such unfair practices have a way of taking the dispute out of the consumer credit law, which entails the impossibility of defending the violated right at the Financial Ombudsman Service (FOS), which is the most accessible, simple and free service for a person there is.
Another reason for the increased number of appeals against banks has been the credit institutions continuing preserving their traditional unfair practices. The overwhelming number of unfair practices uncovered by the Financial Ombudsman still comes from banks. In 2024, the Financial Ombudsman revealed more than 500 cases of unacceptable practices in the activities of financial institutions. The majority of such practices are related to consumer lending. In particular, credit institutions charge disproportionate fees for “connecting” borrowers to collective personal insurance contracts concluded between lenders and insurers. And so-called one-off services, which are by definition impossible to refuse, as they are already considered to have been provided at the time of contract conclusion. In those cases where we find that there is no evidence of the actual provision of these types of services, we recover the fees for them in favour of the consumer.
Yet another reason for the increase in the number of appeals against credit institutions has been the growth of fraudulent activities with bank customers’ money.
Thus, in 2023, the FOS received just under 1.5 thousand consumer appeals with complaints about the withdrawal of funds as a result of fraudulent actions, and almost 2.5 thousand in 2024. And although our capacity in this category of disputes is not extensive, the Financial Ombudsman nevertheless made 769 decisions on these appeals (120 to satisfy consumer claims, 404 to refuse to satisfy consumer claims, and 245 to terminate consideration of the appeal), which is 77% more than the number of similar decisions made by the FOS in 2023.
To protect consumers from unfair practices, it is the opinion of the Chief Financial Ombudsman that it would be advisable to have the interaction between banks and consumers recorded, i.e. the obligation to keep and store audio or video recordings of communications between financial institutions and their customers should be legislated.
In this regard, Yury Voronin noted that in 2024 the Financial Ombudsman Service together with the Bank of Russia has developed a relevant legislation proposal. The draft is currently undergoing the procedure of harmonisation with the state authorities, the CFO said.
