UK financial ombudsman hits phones to cut through AI hallucinations

AI hallucinations are appearing in rising numbers of consumer complaints to Britain’s Financial Ombudsman Service, which is responding by calling more people to discuss their cases over the phone.

James Dipple-Johnstone, chief ombudsman, told the FT that the most striking case of AI hallucinations he had seen so far was when 37 out 39 references made in a consumer’s submission turned out to be “incorrect in terms of the complaint as put”.

“The AI can hallucinate, it can draw the wrong conclusions and sometimes the individual’s complaint can get lost in the mix in terms of that additional material that’s put in,” Dipple-Johnstone said.

It is the latest example of UK public sector bodies and courts being weighed down by a sharp rise in submissions written by AI that are often lengthy, inaccurate and take longer to process.

Dipple-Johnstone said some AI-written complaints received by the FOS included references that “weren’t relevant to the facts of this case, so you are having to go through that, but it generates extra effort for us in terms of having to work through those kinds of matters”.

To tackle the issue, FOS caseworkers are now calling customers more. “Our initial response has been to roll out more telephone contact with customers to make sure that we get to the heart of the dispute,” he said.

A recent FOS review of a small number of cases found up to a third of the responses to its initial assessments appeared to have been generated or heavily assisted by AI. Some were helpful, it found, but others were time-consuming, overly long and inaccurate.

Claims management companies and law firms are increasingly using AI to generate mass submissions to the ombudsman on behalf of consumers, some of which exceed 200 pages.

Dipple-Johnstone said AI submissions were on the rise at other ombudsmen in the UK, including those handling complaints over public services and the legal system.

He said AI could be “a good thing” for consumers, giving them more confidence to make a complaint and helping them to articulate it. But it can also encourage consumers to pursue claims for longer than they would otherwise by adding superfluous points to a claim.

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The FOS was set up in 2001 as an independent service to decide on unresolved consumer complaints against financial services companies.

But the Treasury has recently criticised the ombudsman for acting as a “quasi-regulator” and drawn up plans to reform it in a bill currently before parliament.

The reforms aim to reduce its flexibility to rule against companies that have complied with regulation, require it to consult with the Financial Conduct Authority on regulatory grey areas and introduce a 10-year time limit for consumers to complain.

Scrutiny of the FOS has intensified in recent years after its rulings in favour of consumers complaining about alleged mis-selling of car finance contributed to one of the country’s biggest financial scandals, expected to cost lenders more than £9bn.

The FCA has sought to launch an industry-wide redress scheme to handle millions of car finance compensation claims. But this has been paused pending a legal challenge, with a hearing due in February, raising the risk that the FOS could be inundated with car finance claims.

The ombudsman already has almost 100,000 car finance complaints and Dipple-Johnstone said several hundred thousand more could land if the FCA scheme is blocked, based on the almost 1mn claims it had for payment protection insurance mis-selling over the past decade.

AI could help the FOS cope with a surge in car finance complaints, along with plans to step up hiring and use more contractors, he said. Early use of AI at the FOS has already halved the time taken for certain processes.

“The decisions themselves will always be taken by human beings, but we’ve been looking at how technology can put us in the best place to be as efficient as possible while still providing a high-quality service for consumers,” he added.