Gripes to banks' overseer double

Complaints to the banking ombudsman have doubled despite banks often failing to inform customers properly of the process.

The recession, poor financial advice and tougher bank stances on lending led to a record 1888 complaints in the year to June.

Another 3248 people made informal complaints, up 83 from the previous year. Banks paid out $7 million in compensation as a result of 430 completed investigations.

The increases related mainly to investment advice to ANZ Bank customers who had invested in two ING funds, high fees to break fixed-term mortgages, and tougher lending and debt recovery practices.

Nearly a third of surveyed call centre operators did not understand the ombudsman's process.

Ombudsman Liz Brown said in her annual report there was a "reasonably strong correlation" between the state of the economy and her office's workload.

"While some increase in complaints had been expected, the size and speed of the increase was much greater than anticipated.

"Complaints were coming in faster than new staff could be trained to deal with them."

In January a disputes waiting list was set up, with non-urgent cases taking up to eight weeks to be assigned to an investigator.

Banks, which fund the scheme, were charged an extra levy to cover the cost of the increased workload.

David Tripe, director of Massey University's Centre for Banking Studies, said it was time the ombudsman raised the break-fees issue.

The rise in complaints was likely to reflect people trying to break their mortgages as interest rates plummeted last year; many had not been properly warned of penalties when they signed up for a fixed-term rate.

"I'm far from convinced that the risks of fixed-rate loans have been adequately explained to customers.

"There's a variety of people who have probably been given less cautious and measured advice than they ought to have been."

The report reveals that banks are increasingly failing to comply with a requirement to display information about the ombudsman scheme and their own complaints processes.

A third of branches surveyed did not display information on the bank's own complaints process, and 37 per cent did not display leaflets promoting the ombudsman scheme.

The scheme was designed for complaints that were not resolved by banks' own processes. The ombudsman can require a bank to pay compensation if she finds the bank has acted wrongly.

Responding to the report, several of the main banks said they promoted the ombudsman scheme and "lapses in the supply of information" were usually due to staff "forgetting to refill brochure holders".

Kiwibank spokesman Bruce Thompson said the bank tried to deal with complaints internally.

"What sometimes can lead to misunderstanding is the commitment by staff to take ownership of a complaint rather than simply escalate it or refer it to the ombudsman."

The report says a less formal resolution process has led to 55 per cent of complaints being settled on initial assessment, halving the number of formal recommendations required to conclude an investigation.

Ms Brown retired in July after 14 years.