Financial gripes reach 7,000 a day, says ombudsman
Consumers' lack of trust in financial firms led to a 92% increase in cases taken up by the financial ombudsman service last year.
Individuals were also more aware of their rights and more willing to complain, the chief ombudsman said.
Claims for the mis-selling of payment protection insurance (PPI) dominated, accounting for 74% of complaints, but most sectors saw a rise in gripes.
Banks said they had hired more staff to deal with complaints efficiently.
The Financial Ombudsman Service (FOS) is free for consumers. It has the legal power to sort out problems between financial businesses and their customers across the UK.
Its remit covers most aspects of financial services, from mortgages to mobile phone insurance and pet insurance to payday loans.
The FOS received more than two million initial inquiries and complaints from consumers, its annual report showed. This led to 508,881 new cases being opened in 2012-13, a record for the service.
This increase was provoked by a lack of trust in financial institutions, it was claimed. For example, there was a spike in complaints after the Libor rate-rigging scandal.
It was also the result of greater awareness among more confident consumers at a time when many families' budgets were stretched, according to chief financial ombudsman Natalie Ceeney.
"We have seen a much stronger consumer voice in the last year, with people becoming more aware of their rights and less willing to put up with poor customer service," she said.
"As levels of confidence in financial services have eroded, it is disappointing that we still have not seen any significant improvement in complaints handling.
"Too many financial businesses still seem unable to sort out problems themselves without the ombudsman having to get involved."
Figures show that one in four initial inquiries went on to become formal disputes, up from one in five in the previous two years.
The ombudsman suggested that this was partly the result of firms being financially hard-pressed themselves and so wanting to delay any payouts.
Compensation was eventually paid in nearly half of these formal cases.
Four of the UK's largest banking groups accounted for 62% of all complaints to the FOS in 2012-13, up from 52% the previous year.
Richard Lloyd, executive director of consumer group Which?, said: "These shocking figures show the banks are still letting their customers down and failing to help consumers with legitimate claims get the compensation they are rightly owed.
"The Financial Conduct Authority must take tough action against any bank found dragging its feet in settling complaints. It is time for a big change in banking, with banks that work for customers, not bankers."
But the British Bankers' Association (BBA), which represents UK banks, said the system was still being clogged up by unscrupulous claims management firms, while banks had taken action to improve their activities.
"We will continue to work with the ombudsman to try to improve the system for the benefit of customers," a spokeswoman said.
"All of the UK's High Street banks have committed publicly to ensuring a decisive end to any bad practices which resulted in mis-selling. Banks are overhauling their incentive structures for frontline staff, rewarding staff for high levels of customer service and not sales volumes."
The focus on the major banks was primarily the result of the continued flood of complaints concerning PPI.
PPI was designed to cover loan repayments for policyholders who became ill, had an accident or lost their jobs. Yet it was mis-sold on a massive scale to customers who did not want or need it.
Refunding these customers has cost the UK banks a collective total of more than £15bn. Some claims are disputed by the banks and these often end up with the ombudsman.
The number of cases referred to the FOS totalled 378,699 in 2012-13, more than double the previous year. Consumers in the North East of England were most likely to complain about PPI.
There was a 12% drop in the number of complaints brought by claims management companies, as individuals realised they could bring a claim themselves without paying a chunk of any payout to these enterprises.
More staff considered
Yet it was not just PPI claims that increased in the insurance sector. Complaints about other forms of insurance rose by 20% in 2012-13 compared with the previous year.
This included an 85% increase in disputes over private medical insurance to 949 cases, and a 50% rise in pet insurance disputes.
In other sectors, there was a rise of at least 25% in new cases relating to current accounts, mortgages, unsecured loans, investment-linked products, pensions and other banking services, such as cash machines.
The FOS said that, given the record number of complaints, it was considering employing an extra 1,000 staff to deal with the extra workload.