Rising number of customer complaints received by the HKMA

Our Ref :

B9/67C

30 May 2002

To:

The Chief Executive
All authorized institutions

Dear Sir/Madam,

Rising number of customer complaints received by the HKMA

I write to draw your attention to the rapid rise in customer complaints against AIs received by the HKMA in recent months, and a number of suggested measures to address this issue.

In the first quarter of 2002, the HKMA received a total of 479 complaints against institutions, compared with 176 in the same period last year. Of these complaints, 250 were related to debt collection, and 229 were general complaints (compared with 93 and 83 respectively for the first quarter of last year). In fact, the total number of complaints in Q1/2002 alone is already over 50% of last year's total of 880 complaints. This rate of growth is unprecedented. Based on the current growth rate, the projected number of complaints for this year is likely to reach over 2000 cases.

A certain number of complaints is a healthy phenomenon. Moreover, relative to the number of accounts, the amount of complaints is not excessive. However, rapid growth in the number of complaints is a cause for concern. First, it could indicate that the quality of customer service is deteriorating or at least not keeping pace with customer expectations. Second, the handling of customer complaints is posing an increased administrative burden on all concerned (including the complainants themselves who have to go to the trouble of lodging complaints).

In view of this, the HKMA believes that AIs should give increased priority to ensuring, so far as they can, that complaints do not arise in the first place. And, to the extent that complaints do arise, they should ensure that the complaints are dealt with in a fair, thorough and prompt manner that is consistent with the requirements of the HKMA's Guideline on Complaint Handling Procedures.

The HKMA would like to draw institutions' attention to some of the important lessons learned from its recent handling of complaint cases -

1. the Code of Banking Practice must be strictly followed. It is, of course, important that AIs have adequate policies and procedures to ensure compliance with the provisions of the Code. But it is even more important that AIs achieve compliance not only in form but in substance as well. For example, in relation to debt collection practices, it is not enough that AIs have incorporated the relevant provisions of the Code into the service agreement with their debt collection agents. They should also proactively check that their agents are actually following these provisions in their collection activities. In the next three months, all AIs will need to conduct a comprehensive self-assessment of their compliance with the revised Code. The HKMA will issue a standard template to assist AIs in completing this exercise. AIs should take this opportunity to thoroughly review their business practices and operating procedures to ensure full compliance with the Code;
2. AIs must ensure that all complaints are dealt with fairly and thoroughly. Where a complaint is justified, AIs should be prepared to offer the complainant a full explanation of how the problem arose in the first place and what steps they will take to prevent recurrence of similar cases in the future. This is a point that we will stress to AIs in referring complaints to them in the future and we will check that this is done when reviewing AIs' replies to complainants; and
3. AIs must ensure adequate levels of transparency in the provision of banking products and services. Given the increasing competition in the banking sector, there has been a general proliferation of more innovative and diversified products and services in the retail banking market. Such new products and services are often more complex and sophisticated and are more likely to give rise to disputes between AIs and their customers. AIs should therefore ensure that all advertising and promotional materials are fair and reasonable and do not contain misleading information. This is in fact a requirement under the Code with which all AIs should already be complying.

The increase in the number of complaints is to a large extent related to allegations of misconduct by debt collection agents (DCAs). We have already taken the matter up with the Code of Banking Practice Committee as an industry issue. Consequently, the industry Associations have issued a circular to all member institutions reminding them to step up monitoring of the performance of the DCAs they employ and ensure full compliance with all relevant provisions in the Code of Banking Practice. The HKMA fully endorses the industry Associations' advice given in their circular.

In addition to the general advice given by the Associations, the HKMA would like to draw institutions' attention to the following based on our recent handling of cases involving debt collection action taken against innocent third parties.

1. Institutions should put in place an effective mechanism for debt collection agents to report cases of apparent mistaken identity (e.g. cases of repeated denial of connection with the debtor) to the institution at an early stage. This would enable institutions to review the case and seek clarification of identity from the party who is being approached by the DCA;
2. In cases involving innocent third parties, institutions should be more sensitive about the feeling of the victims. Ceasing collection action alone, which the innocent third parties should not have been subject to anyway, is not enough. As noted above, institutions should give a full explanation of the reasons why the problem had occurred in the first place; and
3. While it may sometimes be difficult to establish whether improper tactics have been used by DCAs, institutions should not take the assurances of the DCAs at face value. Institutions should be prepared to listen to both sides and to discipline their agents if they are found to be in the wrong¹. Bland statements to the complainant to the effect that no irregularities were found in the DCAs' reports are not sufficient.

In view of the rise in allegations of unscrupulous debt collection tactics, the HKMA has decided to reinforce its supervisory oversight of AIs' debt collection activities. All institutions will be required to submit a quarterly report (see Annex) on complaints received against the DCAs they use. The report should cover the number and nature of complaints received in relation to each of the DCAs engaged by the AI and what actions the institution will take in relation to those DCAs which attract frequent complaints. The report should be submitted to the HKMA within 2 weeks of the end of each quarter. The first such report, covering the second quarter of 2002, should be submitted to the HKMA by 15 July 2002. The soft copy of the reporting template will be emailed to your institution shortly. Should you have any questions on the report, please contact Ms Jocelyn Chan at 2878-1275.

Yours faithfully,

D T R Carse
Deputy Chief Executive

Encl:

Annex (PDF file, 26KB)

c.c.

Hong Kong Association of Banks (Attn: Ms Eva Wong)
DTC Association (Attn: Mr PC Lund)
SFS (Attn: Ms Kinnie Wong)

^1. Section 37.12 of the Code of Banking Practice provides that institutions should consider whether to terminate the relationship with a debt collection agency if they are aware of unacceptable practices of that agency or breaches of its contractual undertakings.