In 2014, the United Kingdom’s Financial Ombudsman Service (Fos) report revealed an excess number of payment protection insurance (PPI) claims. The exceptionally high number of complaints brought to the Fos by consumers resulted in a 78 percent increase of claims records in past cycle.

Since the inauguration of the Fos in 2000, a total of 2.5 million consumer PPI claims have been initiated. Of those cases, 61 percent have been restricted to three main issues:

1) bank and credit card charges

2) mortgages, and

3) PPI.

Statistically speaking, PPI comprise 8 out of 10 claims issued to the UK Fos complaint system.

According to Fos representatives, the fact is that consumers refer about 2,000 new PPI cases each day, and this is going to require several years to sort out sufficiently to resolve those issues. The volume of PPI claims is the reason given for the announcement that the Service will be scaling up its operations capacity in the near future.

Requests for compensation on an estimated £50 billion in PPI policies already sold to UK consumers in the past 10 to 15 years, by a range of financial businesses, means that billions of pounds in compensation has already been paid out. It was only with the establishment of the Fos that the British government was able to adequately review the extent and the nature of consumer claims.

Last April, the Fos announced receipt of its 2 millionth claim. In 2013, PPI passed the million mark; totaling 46 percent of all claims for FY13 and FY14. It is important to note that the first mis-selling fine for PPI was caught in 2006. The fact that Fos claims volume has increased sharply in the past 5 years makes redress provisions especially important.

Direct consumer complaints comprise three-quarters of the total number of Fos claims. The breakdown by product segment illustrates the unevenness in demand, with only 1 percent of those claims resulting from credit card coverage complaints, and 2 percent from other products. The latter statistic includes total number of claims in the investment and mortgage category brought by claims management companies.

Claims management companies are responsible for much of the increase says the Fos. Of the 400,000 PPI claims initiated in the past year, 72 percent are claims management company complaints. This reflects a rise from the 57 percent attributed to claims management company filings in 2012.

In the past year 510 claims management companies filed complaints on behalf of consumers. Frequency distribution of those claims shows that of the total, there were 10 CMC accounting for 40 percent of all Fos cases on file. The other 60 percent involved 500 CMC less active on Fos accounts.

The demand on Fos operations is raising the bar in terms of processing and mediation of PPI and other complaints. Claims initiated across all product areas are on the rise, with the influx of PPI claims dominating the entire scope of service interface to consumers demanding coverage.

Other product types aside from PPI are comparatively marginal in term of claims numbers. The challenge that the Fos faces in terms of handling new claims is backlog. Subsequent inefficiency in the processing of a claim post filing is the result of the unforeseen volume of consumer complaints.

The British government has expressed concern over the rising costs of PPI, and the extent by which the Fos is unable to facilitate the resolution process without additional allocations. The fundamental concern expressed by the Fos is that mis-sale of PPI in the past is found across consumer credit segments, and hundreds if not thousands of financial businesses. Mis-selling is ascribed to any financial business not adhering to the terms and conditions on contract in respect to consumer compensation or coverage.

The ‘super-complaint’ to UK regulators in 2006 in response to the mis-selling of PPI set the legal process into motion, gaining momentum for support of additional compensation on those damages. In 2011, when major banks lost to court action against the Fos and regulators, consumer filing increased to record levels.

The scale of PPI was an unexpected outcome of consumer credit businesses not adhering to written agreements. If one considers how this reflects on the financial sector ethics and the general adherence of institutions and firms to UK regulation of consumer credit responsibility, the absolute negligence of those obligors is daunting.

At the moment, the PPI claim process to resolve standing complaints will require at least 3 years. Some consumers are finding themselves turned away by the Fos as well. The Service admits that it is refusing to take consumer complaints that cannot be resolved in short order.

Claims denied by the Fos are now the responsibility of the UK Ministry of Justice, Legal Ombudsman. The Ministry of Justice provides consumers with information on best practices in lending. Transparency is seen as the solution to future detriment.

Corruption and unwarranted claims is not unknown in respect to Fos claims.

The increase in small self-administered schemes and self-invested pension funds in the Fos is under investigation. Doubling in the past year, the Fos holds more than 1,000 self-administered fund complaints on record. This figure is a leap from about 700 self-administered fund complaints in 2012. About the quarters of these negligible complaints stem from investment advisory related to unregulated investments. More than 60 percent of such complaints are upheld by the Financial Ombudsman Service.

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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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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.