Claims firms kept £5billion from payouts to PPI victims

CLAIMS management companies pocketed nearly £1 in every £4 of compensation paid out for PPI mis-selling claims, a watchdog has found.

The firms kept up to £5billion in compensation which was paid out to more than 12million customers wrongly sold Payment Protection Insurance.

A National Audit Office (NAO) report said a ‘lack of awareness’ that consumers could seek compensation for free has led to millions turning to claims companies, which charged an average of 28 per cent commission.

Last night critics described the claims managment firms’ behaviour as ‘immoral’ and said they had ‘preyed on customers’ naivety’ to make easy profits.

The NAO estimated that the companies received between £3.8billion and £5billion in commission from PPI compensation payments between April 2011 and November 2015 – 23 per cent of the £22.2billion total compensation paid.

Its report said: ‘The quality of claims management remains highly variable, with some companies doing little more than passing batches of consumer complaints on to the ombudsman while achieving high profit margins.’

Claims management firms make money by contacting banks or the Financial Ombudsman on behalf of customers and then taking a cut of the compensation paid out for successful claims.

More than half of all complaints made to the ombudsman between 2010 and 2015 were by these companies.

And in 2014/15 alone, 160,000 PPI mis- selling complaints – four out of five – were made by claims firms.

But many customers were unaware that they could keep 100 per cent of their compensa- tion if they used the free ombudsman service themselves.

Justin Modray, of financial guidance site Candid Money, said: ‘Whilst the majority of claims management firms are above the law, there is a very big moral question mark over their business practice.

‘They have obviously preyed on customers’ naivety and in the vast majority of cases are simply forwarding claims on [to the ombudsman] and tak-

‘Preyed on customers’

ing a hefty cut in the process.’

Martin Lewis, founder of MoneySavingExpert.com, said it was more likely claims firms had received around £3billion.

He added: ‘ Certainly the claims management industry has made billions out of PPI.

‘That is far too much when there is a lot of free information out there for customers.’

The ombudsman has dealt with around 400,000 PPI com- plaints a year since 2012/13, and this figure is expected to rise if the FCA imposes a proposed deadline for applying for compensation.

It has ‘struggled’ to cope with the influx of complaints and is trying to reduce a backlog dating back two years or more, the NAO found.

Around 45 per cent of open cases have been with the ombudsman for at least a year, with 17 per cent – almost 40,000 – for at least two years.

Despite an increase in staff, it took three times as long for a complaint to be processed in 2015/16 than in 2011/12. However, it is unlikely that the volume of complaints will die down any time soon – as the FAO warned that mis- selling to customers remains a ‘major problem’.

The NAO said that banks had a poor record in dealing with complaints and the proportion upheld by the ombudsman remained consistent over the past five years.

It also pointed to concerns raised by the Financial Con- duct Authority that new pension freedoms risked becoming the next scandal.

James Daley, of comparison site Fairer Finance, said claims management firms blocked honest customers from receiving compensation quickly because they pursued ‘vexatious’ claims which took up officials’ time.

He added: ‘The firms are desperate to extort compensation whether it is due or not.’ The Claims Management Regulator has issued four fines totalling £1.6million since it was given new powers to enforce penalties on badlybehaved claims companies.

In January, it revoked the licence of a business which had made 40million nuisance phone calls in three months.

A Treasury and Ministry of Justice review into claims management regulation is due to report back in April.

The MoJ has also proposed capping the maximum completion fee the firms can charge at 15 per cent of the final compensation awarded.