Pressure growing to crack down on PPI firms

The firms, which purport to help people secure compensation for mis-selling, have taken more than £2 billion from the redress awarded for payment protection insurance (PPI) mis-selling, it has been estimated.

That includes £89 million of the £136m paid out by the Financial Services Compensation Scheme (FSCS) to consumers claiming PPI redress from failed firms, new figures show, with CMCs swiping up to 40 per cent off the the typical payout.

Yet while concerns mount over the activities of claims handlers, little has been done to tackle them – least of all in Scotland.

Hundreds of CMCs have been shut down in recent years by the Ministry of Justice, which covers England and Wales. Similarly, consumers south of the Border will soon be able to use the Legal Ombudsman to pursue cases against CMCs. In successful cases the Legal Ombudsman will be able to award compensation up to £30,000 (possibly rising to £50,000) to people in England and Wales.

Mike Dailly, principal solicitor at Govan Law Centre, last month claimed Scotland was “seriously lagging behind the rest of the UK when it comes to protecting consumers from the rogue practices” of CMCs.

“CMCs have a licence to do as they please in Scotland, with no regulation, minimum standards or consumer-friendly rights of redress. In short, CMCs can rip off Scottish customers without fear of any sanction,” said Dailly.

The Scottish Government responded that the issue is being addressed as part of a study being carried out by Sheriff Principal James Taylor. A spokesman for the Scottish Government told The Scotsman: “Claims management is being considered as part of the ongoing Review of Expenses and Funding of Civil Litigation in Scotland, which is due to report in summer 2013.

“This review is looking at many aspects of the funding of civil litigation, and the Scottish Government will consider its findings and recommendations in due course.”

The matter is being looked at in the context of how litigation is funded, alongside referral fees, before and after-the-event insurance and speculative and conditional fees.

As it stands, however, CMCs are not regulated in Scotland, whereas south of the Border they are covered by the Compensation Act 2006.

So what’s the urgency? The main concern is that while the firms have helped raise awareness of the availability of compensation for mis-sold PPI (and previously products including endowments), they grab a large slice of compensation that can otherwise be secured free of charge.

Most CMCs take a slice of 25 per cent of the payout – equating to £825 of the average £2,750 compensation pot – often in the form of upfront fees.

But two-thirds of CMCs failed to tell people how much they charge, according to Citizens Advice research. A recent report by the charity – entitled The Claims Pest – found that just one in five firms provided details of the consumer’s cancellation rights.

The report reinforced research last year by consumer group Which? showing that one in four people using CMCs didn’t realise they would have to pay for the service. The fees themselves account for a growing number of complaints to the Financial Ombudsman Service (FOS), which cannot deal with such issues because CMCs are not regulated by the Financial Services Authority.

One Citizens Advice Scotland (CAS) client was recently charged a 39 per cent fee by their CMC, leaving them owing the company £1,700 of their £4,417 compensation.

“Companies who claim they are offering a specialist, complex service are simply misleading people,” a spokesman for CAS said. “Often they are not being upfront about their fees, are charging excessive costs and then in many cases are not even getting people the payout they deserve.”

The chances of compensation are no worse if you go direct to the provider and then the ombudsman (see Box 2 for details of the process).

Yet seven in every ten of the PPI complaints received by the FOS last year were brought by claims managers.

A spokesman for the ombudsman said: “When making a PPI claim, there is no need to use a claims manager, you can bring your complaint to the ombudsman yourself – it is free, easy and you get to keep all of the  potential compensation you are owed.

“Using a claims manager does not improve your chances of winning and they can take up to 40 per cent of your compensation, while many also charge an upfront fee.”

However their advertising – particularly prominent on daytime television – proves so peruasive that people have claimed for mis-selling even if they’ve never taken out PPI. Such cases account for up to one in four PPI complaints to some banks and building societies.

With the FOS predicting that PPI cases will flow in for at least three more years, and Britain’s high street banks this month setting aside yet more money to compensate customers mis-sold the product, CMCs are mining a rich seam of revenue.

Meanwhile, moves in Scotland to rein in the firms have so far come to little. Fergus Ewing – then community safety minister – said in 2010 that the Scottish Government had no “fixed position” over the regulation of CMCs.

That was despite a consultation on the Legal Services (Scotland) Bill in which 85 per cent of respondents wanted Scottish consumers to be given legal protection against CMCs. CAS has called on both banks and regulators to do more to stem the growth of claims handlers.

Victims picked off by the compensation companies

Citizens Advice Scotland has reported a marked rise in the number of people asking for help after being landed with hefty and unclear charges by claims management companies (CMCs). Here are three recent examples:

• A client in the west of Scotland is being chased by a CMC for 30 per cent of the £2,822 compensation that she is due from the bank responsible for mis-selling her PPI.

The bank has not paid up, yet the individual in question has been told by the claims company she signed up with that she must pay its 30 per cent within 14 days. Unfortunately she had entered into an agreement with the firm, meaning that it had a legal right to pursue payment of the amount agreed

• Another PPI mis-selling victim sought help from a Citizens Advice bureau in the East of Scotland after being billed by a CMC firm despite having apparently secured his compensation directly from the bank concerned. He authorised the CMC to work on his behalf but when it failed to respond to a series of calls, he approached the bank himself and won a £3,941 award. Four months later the claims handler billed him for £1,418, amounting to 30 per cent of the compensation plus VAT, a figure the client insists had not been agreed.

• In the north of Scotland a Citizens Advice client has accused a CMC called Redress Claims of harassment and “very aggressive” treatment in its pursuit of £2,000, its 30 per cent of the £8,000 payout promised by her bank. The cheque has yet to be processed due to a heavy backlog of claims.

PPI CHECKLIST

Check you’re entitled to it

If you’ve taken out a loan or mortgage, get your policy and find out if it included the insurance. If you believe it was mis-sold (perhaps you were told you had to take it out, or if you’re not eligible to claim on it anyway), contact the relevant company. Providers were told to write to all people potentially mis-sold the policies, but this is an ongoing process.

Contact the provider

Call, e-mail or write to them with your complaint. A sample letter can be downloaded from www.adviceguide.org.uk. Try to keep copies of all correspondence, such as the person you spoke to and the date. This will help your case in the event of going to the Financial Ombudsman Service (FOS).

Wait...

The provider has eight weeks in which to respond. If you hear nothing in that time, remind them that they are legally obliged to reply to you. Some banks are letting complaints expire deliberately, in the hope that people will give up.

Keep going

If you don’t get any response, or the one you get is not satisfactory, you can take your complaint to the Financial Ombudsman, which mediates in disputes between consumers and financial firms. This is a free service and very straightforward. Don’t use a claims management company to do it for you, as it’s simply a matter of filling in a couple of forms.

The FOS can be contacted on 0845 080 1800 or by e-mail [email protected].

Do this within six months of the eight-week deadline ending.

Be diligent

Send the FOS any information and documents that reinforce your case, such as any account or policy numbers, details of correspondence with the bank and any other evidence supporting your complaint.

Be patient

Fos cases typically take around three months to process, but some can be longer. The PPI backlog means you could be waiting far longer, however. Most complaints are upheld, but if it finds against you, there’s still the Small Claims court to try (although this isn’t free).. For details on this, go to www.scotcourts.gov.uk.