Jeff Salway: Claims handlers just rub salt into wounds of PPI mis-selling

IF YOU'RE trying to identify the next big financial services scandal, take a closer look at the firms purporting to help payment protection insurance (PPI) mis-selling victims get their money back.

By continually failing to treat their customers fairly, the UK's banks have spawned a cottage industry of companies that specialise in handling claims for compensation. Most of these no-win, no-fee operators emerged as the endowment mis-selling scandal unfolded and with the banks facing a 9 billion bill for PPI compensation, they are now chasing an even bigger payday.

The manner in which they are circling their prey sometimes stands comparison with mis-selling of the policies in the first place. If you haven't yet seen their adverts, received their spam e-mails or been hounded by their cold calls, it's just a matter of time. Unfortunately, their direct and often misleading adverts have convinced thousands of people that without their help they will struggle to secure any PPI compensation.

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Consumer group Which? has estimated that people using claims handlers - unregulated in Scotland and covered by Ministry of Justice regulation in England and Wales - will typically lose about a quarter of their compensation payout on fees.

That could add up to more than 2bn of the total PPI redress due, based on 825 fees on the average payout of 2,750. Going down the claims handler route effectively amounts to being ripped off twice - first by the bank mis-selling the PPI, then by the company securing your compensation.

There are times when using a claims handler may help someone flesh out their complaint, but in the vast majority of cases it's a simple process that does not demand third party input.

They rarely do more than take the individual's case to the Financial Ombudsman Service (FOS), a process that is not sufficiently complicated to be worth sacrificing up to 30 per cent of the compensation pot for.

Naturally, claims handlers are coming under fire from banks and building societies, with some reporting claims from people who have never bought PPI from them. It's not just the big banks that are being swamped, however. Peter Griffiths, the new chairman of the Building Societies Association, believes claim management companies are responsible for as much as 80 per cent of PPI redress bids. He accused them of "getting away with murder", adding that "there are claims being made by them that their clients don't even know about".

The FOS has repeatedly stressed that going through a middle-man does not improve anyone's chances of success or influence the speed at which a claim is investigated. The FOS restores successful complainants to the financial position they would have been in had they not been mis-sold a policy - those choosing to pay a large chunk of the redress to a claims handler clearly can't achieve that.If you think you're owed compensation for mis-sold PPI, the first port of call is your bank. If you don't get a satisfactory response within the eight-week deadline set by the City watchdog, complain (free of charge) to the FOS.

Its website has a helpful section on how to take get complaints taken on by the FOS (at notes/ppi.html).

The number of Scots complaining to the ombudsman about PPI has doubled in the past year and the figure will rise further over the coming months. The bulk of cases are found in favour of the consumer, so it's well worth persisting.

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The PPI episode underlines how important, even indispensable, the ombudsman has become. Thanks primarily to Lloyds Banking Group, Royal Bank of Scotland, Barclays and HSBC the ombudsman's workload is getting heavier by the hour.

The FOS received 4,000 complaints every working day in the year to April; that's one complaint every ten seconds. One in five of the one million inquiries it handled became formal disputes, the majority of which were settled in favour of the consumer.

The numbers are astonishing enough even before you remember that these are merely the complaints from people that have first made the effort to complain to their bank and then taken the issue further when the bank has fobbed them off (often deliberately, in the knowledge that many people will then give up). In other words, the grievances taken to the ombudsman are just the tip of the iceberg. Too many financial services companies are still getting away with it and rampant mis-selling continues unchecked.