Scandal of the PPI claims sharks

Government under fire for failing to halt rise of industry targeting victims who seek compensation

BANK customers trying to get their money back after the PPI mis-selling scandal have been cheated again by a £5 billion rogue industry that has grown up around it, a new report warns today.

MPs sitting on the public accounts committee (PAC) have criticised City watchdogs and other departments for allowing unscrupulous firms to target millions of customers who have already been ripped off.

For more than five years claims “sharks” have been charging mis-selling victims more than £1,000 simply to reclaim money to which they are legally entitled.

Since January 2011 an estimated 7.5 million people have been paid a total of £23 billion in PPI compensation, according to figures from the Financial Conduct Authority, the city regulator.

But the Government’s lack of foresight means some victims are having to wait up to two years before they receive the money, the MPs say.

The waiting list and complexity of the process have spawned a new industry that offers to do the paperwork on behalf of customers in return for up to a third of their compensation.

Profits made by the PPI claims industry have exceeded £5bn in total, according to the National Audit Office, partly the result of firms bombarding more than 30 million people with unsolicited calls and text messages in a relentless hunt for business.

MPs last night condemned the Government for failing to anticipate and control the development.

Meg Hillier, Labour MP and the PAC chairman, said: “The problem of claims management companies taking too much of the compensation intended for victims of mis-selling was entirely predictable.

“For example, similar problems harmed former coalminers who had al- most £1.3 billion of compensation taken by solicitors.

“Collectively, the public bodies involved in the PPI scandal – the Treasury, the Ministry of Justice, the FCA and the ombudsman – have been too slow in taking responsibility for this situation, and too passive in allowing it to happen.”

Alex Neill, Which? director of policy and campaigns, said: “This is a scandal within a scandal and shows that the FCA’s current approach simply hasn’t worked. This has meant many people have resorted to using claims management companies. The regulator must ensure this never happens again.”

Martin Lewis, founder of consumer website MoneySavingExpert.com, said that despite claims firms’ “abominable reputation”, the real blame lies with the banks. “They make it difficult for people to find out if they are owed compensation, pushing them into the arms of claims sharks,” he said.

PPI is an expensive insurance that was sold to millions of bank customers alongside credit cards and loans. In vast numbers of cases, the policy, which is a lucrative money-spinner for banks, was either inappropriate for the customer’s needs or added by sales staff without consent.

The scandal continues to dominate the workload of the financial ombudsman, with 92,000 new complaints against the banks in the last six months of 2015.

It is straightforward and free for affected consumers to claim compensa- tion by going directly to banks and by going through the ombudsman, yet in 2014–15 80 per cent of PPI complaints were made through claims management companies.

The Government announced in March that the industry would be regulated by the FCA, where it faces a “tougher” regime.

An FCA spokesman said: “We are considering the recommendations in the public accounts committee’s report. It rightly makes the point that central to preventing mis-selling is firms having the right culture.

“Firms’ culture and governance is one of the priority areas set out in our business plan.”

The scale of banks’ mishandling of payment protection insurance schemes and the amount of compensation paid to customers sold inappropriate policies are both staggering. More than 12 million consumers were “mis-sold” insurance policies. The companies responsible have paid out over £22 billion in compensation to those customers since April 2011.

At a glance, that looks like an example of a good regulatory response to corporate shortcomings. But as the Public Accounts Committee makes clear in a report today, the sheer scale of the exercise threatens to create second-order problems of its own, which have darkly ironic echoes of the original offence.

As the committee notes, it is quite simple for customers affected by PPI errors to apply directly for compensation. Yet very few do so. Instead, a remarkable 80 per cent of claims are made via companies acting as middle men, making complaints on behalf of those supposedly affected then taking a hefty cut of any compensation. Such claims-handing companies have made as much as £5 billion from doing things that the vast majority of claimants would be fully capable of doing for themselves, if they only knew it.

The committee is “disappointed” by that figure, and there are questions to be asked about whether the market for claims handling is operating correctly and whether consumers have been given enough information about PPI compensation and how to claim it. To work properly, free markets need fully-informed participants. The Government departments and agencies overseeing the PPI scheme should do more to inform consumers of their rights.