In March, claims against banks for mis-selling payment protection insurance (PPI) rose sharply and they continued to rise, to a lesser extent, in April. Evidence suggests that this spike in complaints is due, at least partly, to the rapid growth of claims management companies.
PPI Mis-Selling Claims
PPI claims management companies assist consumers with their complaints in exchange for a hefty cut of the payout. A report released at the end of March showed that complaints against the financial sector rose by 29 per cent to 1,660,578.
The PPI complaints involve the selling of payment protection insurance policies often without informing the customer or after providing the customer with misleading information. The banks have generally admitted wrongdoing on their part and have set aside huge funds to cover legitimate compensation claims. Recently, however, the banks have complained about the tactics used by PPI compensation management firms.
Payment protection insurance covers customers’ bills should they become ill, lose a job or otherwise be unable to make payments. Policies were usually part of a package sold with loans or credit cards, often without the customer’s knowledge.
Aggressive claims management companies
According to the Ministry of Justice, the number of firms with licenses for PPI compensation management is now at 897 and many of the top companies are raking in large sums for their clients and themselves.
Gladstone Brookes, for example, was able to net £108m in PPI fees from banks last year for its customers. With a 25% commission and value-added tax, the firm would have made about £25m for its services.
According to estimates, the PPI management companies stand to make at least £1bn and possibly up to £2bn of the total £8bn that banks may pay out in total compensation. The lawyers engaged in the PPI claims often have experience from previous claims campaigns that brought them huge profits.
Barclays hit hardest
In March, Barclays suffered the most from the increase in claims followed by Lloyds and the Bank of Scotland. Barclays received 251,000 new complaints in the first half of 2011 and 281,000 in the second half. Lloyds banking group fielded 240,000 complaints in the second half of 2011 while the Bank of Scotland handled 206,000 new complaints.
In addition to banks, claims are also pouring in against other financial companies including Aviva Insurance Limited, which received 13,330 new complaints in the second half of 2011. Axa PPP Healthcare opened 1,764 protection and insurance complaints during the same period.
Banks fire back against claims ‘fraud’
Many banks are complaining about the tactics used by claims management companies including the charging of hefty fees for filing paperwork on behalf of clients. Not only banks, but consumer watchdog groups and government regulators have also warned customers about these unscrupulous practices.
Lloyds banking group chief António Horta-Osório claimed this week what about one quarter of all PPI claims are invalid. The bank now has a total of about £375 million in compensation claims with the number expected to grow sharply.
Horta-Osorio said that the “fraudulent” claims were slowing down the process of handling legitimate complaints and adding to overall costs for the bank. He noted that many of the management companies are also sending the complaints to the ombudsman and this requires the banks to pay regardless of whether the charge is valid.
Taxpayers may take hit
Problems at Lloyds will also have consequences for taxpayers as the government holds a 40 per cent stake in the banking group. Additionally, the government also owns 82 per cent of the Royal Bank of Scotland, which is likewise suffering from the PPI compensation rush.
Lloyds lost £3.5bn last year and barely made a profit in the first quarter of this year whilst RBS said that it lost £1.5bn before taxes in the first quarter. The government is unlikely to dump its ownership in these banks anytime soon since that would mean taking a considerable loss.
Lloyds was at 75p for an average share while RBS was at 50p when the government purchased its stake in these banks. Today, RBS trades at about 25 ½ p while Lloyds is at 32p.
PPI claims companies prospering
Claims management companies like Gladstone Brookes, Avalon and Mitchell Farrar Group have seen business skyrocket as complaints continue to pour in.
Mitchell Farrar Group opened the PPIClaimBack.co.uk website to help harvest claims over the Internet. The company also operates the sites BankingRefunds.co.uk and ReclaimCreditCardCharges.com, and they experienced a £2.2m to £9m rise in business from 2010 to 2011.
PPI claim management company Brunel Franklin reported that it has averaged about £2000 a claim after handling some 100,000 complaints. With a 25 per cent fee, the company would have made about £50m so far.
Customers feel comfortable using claims companies
While banks have complained about their aggressive and “fraudulent” methods, consumers appear to prefer using claims management companies.
The paperwork to make a claim might appear daunting and the legal issues surrounding claims could discourage some customers. The claims management companies mostly promise to do all the work on a ‘no win, no fee’ basis, so there is no risk to the customer in pursuing a claim.
Since the claims management companies have their own lawyers, customers may feel they have a better chance in fighting against the big banks as compared to going through the process on their own.
While the management companies’ marketing may be too aggressive resulting in the large percentage of invalid claims, overall they may also be encouraging more filing of legitimate complaints.
Banks setting aside more cash
In order to handle the continuing rise in complaints, Barclays announced that it would set aside a total of £1.3bn to cover claims as compared to the former amount of 300 million pounds.
State-owned RBS will also increase its compensation fund, which currently stands at 950 million pounds. Lloyds has the largest fund so far with about £3.2bn set aside and an increase expected from the bank will bring that to £3.6bn.
What people also need to keep in mind, PPI Claims companies did not mis-sell the products and also that Banks should rightfully compensate people for their mis-selling.
PPI Claims News
Money Saving Expert with tips on PPI mis selling : Martin Lewis
We came across a wonderful interview from Martin Lewis aka the Money Saving Expert on tips about PPI mis selling. We are bombarded with TV ads for PPI mis selling and telephone calls for PPI claims, but what does it all mean? Martin Lewis, the Money Saving Expert helps to explain the facts.
Claiming PPI in IVA, Getting the Facts Right
Whether you have completed your IVA or you are still in your IVA, making a mis-sold PPI claim is still possible. However, there are differences between the two situations. In one situation, you will be able to keep the compensation you receive from a successful claim. In the other situation, this simply is not possible.
Other concerns also arise when filing a PPI claim. For example, your bank may attempt to use the unrealised asset rule or the offset rule in an effort to keep your compensation once your IVA is finished. Therefore, it is crucial that you understand all of the facts and your chances of success before making a claim.
Payment protection insurance (PPI) factsheet – FOS
The Financial Ombudsman Service factsheet provides information regarding payment protection insurance and information regarding ppi claims.
If you are fed up with those TV adverts and annoying texts- so are we. See below if we do things differently than other companies that you might have come across. Remember that you can do some of these claims yourself.
Tim Capper reports on Financial Mis-Selling for Maple Leaf Financial. Our aim is to ensure you get honest advice and proper guidance to ensure a suitable recommendation can be made to pursue a financial claim
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