Revelations about overcharging at the State's financial institutions prompted a huge increase in complaints against banks and building societies to the Ombudsman for Credit Institutions this year. The number of complaints to the Ombudsman, Mr Gerry Murphy, increased by 28 per cent in the year to the end of September, mainly from customers of banks and building societies who identified incidences of overcharging and errors on their accounts.

During the year, Mr Murphy, who acts as an independent arbitrator on disputes between financial institutions and their customers, received 1,321 complaints, up from 1,033 last year. Of these, 29 per cent related to the operation of bank and building society accounts, including errors in statements, fees and charges and interest rates. Complaints about the operation of mortgage accounts were also prominent, accounting for 27 per cent of the total cases brought to the Ombudsman, while a further 20 per cent related to other lending activities.

Around 73 per cent of all complaints referred to the Ombudsman's office were settled through the internal complaints procedures adopted by the banks and building societies.

In 26 per cent of cases (348 disputes), these procedures failed to provide a resolution and were subsequently referred back to the Ombudsman who then carried out a full investigation. Of these complaints, 137 were upheld by the Ombudsman, 189 were dismissed and a further 22 were settled. In his eighth annual report, Mr Murphy said complaints were running at twice the average monthly rate from March to August, mainly due to media reports of allegations of malpractice in the banking sector relating to fees and charges. Despite the increase in complaints specifically about fees and charges, they still account for just 4.3 per cent of complaints.

Another event which triggered complaints was the flotation of First Active. Mr Murphy received 41 complaints on the flotation, mainly from members who were disputing their eligibility for free shares. Most found they did not qualify because the balance in their accounts fell a few pounds below the required amount. Most of these complaints were unsustainable because the qualification terms are laid down in the Building Societies Act and the Central Bank Act. Each complaint was, nonetheless, examined to see if the failure to qualify was due to any negligent action on the part of the building society.

Unfair treatment was the biggest single category of complaint, followed by mal-administration. Complaints concerning investments also increased, up from 89 in 1997 to 146, primarily relating to the First Active flotation. Complaints about poor service fell from 85 to 65. Complaints arising from the operation of cash machines continue to be prevalent, although considering the enormous number of transactions, they account for 29 of the total. The Ombudsman said the reason for the strong feeling arises because most complaints concern withdrawals which the customer did not make.

"Account holders find it hard to accept that their card and PIN were used without their full knowledge and are more inclined to believe that a systems' failure was responsible for recording withdrawals which did not take place."

The Ombudsman's office cost £289,000 to run last year. It is funded through a voluntary levy on the banks and building societies in proportion to the size of their customer base.