PPI claim managers mop up 25% of customers’ pay-outs

More than three quarters of people successfully claiming PPI redress through the City watchdog’s compensation body are going through claims handlers to present their case. However, the Financial Services Compensation Scheme (FSCS) warned that the firms typically take around a 25 per cent cut, equating to more than £1,133 of the average £4,534 paid out to those using claims handlers.

The FSCS pays compensation to consumers when a failed firm is no longer able to pay claims made against it. It has distributed more than £26 billion to 4.5 million people over the last decade, including £77.5 million for PPI claims.

Claims management companies have accounted for three times more redress cases submitted to the FSCS over the last two years than individuals, according to today’s report. Yet the uphold rate for claims made through third parties is currently 87 per cent, only marginally above the 83 per cent of individual claims that are found in favour of those individuals.

Mark Neale, chief executive of the FSCS, said consumers should be aware that claiming redress through the scheme is free and straightforward.

“People may well think they increase their chances of getting their money back but that is not necessarily the case. Of course, some people may prefer to pay someone to submit their claim for them. Claims management companies take a sizeable part of the possible pay-out and are no more likely to make a successful claim than consumers can on their own.”

Each application made to the FSCS is judged on its merits, it said. The only difference is that someone making a successful claim will receive the full payment and not have to share a cut of it with a third party.

Sarah O’Neill, director of policy at Consumer Focus Scotland, said: “Consumers can apply to get their money back themselves – it is free and straightforward so there is no need to pay a claims management company to do this. The truth is this can significantly reduce the amount someone gets back because of the high fees many of these companies charge.”

Claims handlers accounted for more of the mis-selling complaints handled by the Financial Ombudsman Service (FOS) last year than individual consumers. Eight in ten of the PPI complaints it receives are brought by claims management companies, the FOS told The Scotsman.

But some claims handlers are sending cases to the FOS where there was never a PPI policy in place, it said. It has also received complaints about the fees charges by third-party PPI “ambulance chasers”, but it cannot help in such cases because claims management companies do not offer financial products or services.

Its figures show that there is no difference whether consumers go direct to the FOS or pay for a claims management company to complain on their behalf.

The FOS said: “The ombudsman has always emphasised that there is no need to pay a third party to make a complaint – it does not improve the chances of a complaint being upheld by the ombudsman and can even work against a complaint if the consumer’s individual circumstances have not been fully highlighted.”

l The FSCS’s phone line to help consumers with queries regarding direct claims is 0800 678 1100.