Claims management companies like to say that, without them, nobody would ever have known about the £10bn PPI mis-selling scandal.
About 1,000 companies across the UK have been responsible for submitting more than two-thirds of the 500,000 PPI cases received by the Financial Ombudsman so far– and, between them, they have spent millions of pounds on advertising campaigns to encourage bank customers to reclaim premiums on mis-sold insurance policies.
As the scale of the mis-selling has emerged, companies such as Investor Compensation (UK) Ltd, Gladstone Brookes and Brunel Franklin have seen their potential revenues boom, because they take a 20-30 per cent cut of any compensation paid out to clients. Bank customers do not need to use a claims management company to make a claim – but, based on figures from the Financial Services Compensation Scheme, the claims firms are in line to pocket at least £12m in 2012.
Banks have also made themselves easy targets for claims managers, as their carelessness in checking customer details before rejecting initial claims has encouraged more customers to sign up with firms promising to champion their cause.
But the aggressive solicitation of customers has got some claims managers into trouble. The Information Commissioner’s Office has received almost 30,000 complaints about cold-calling by PPI claims firms, and in September imposed a £250,000 fine on two men responsible for millions of unsolicited text messages.
Banks are also unhappy with the role of the claims companies. They say the claims management industry has slowed down the compensation process by submitting large numbers of bogus claims – sometimes from consumers who have never taken out a policy. Lloyds Banking Group, which has set aside more money to pay out claims than any other bank, has reported that one in three claims it received turned out to be invalid.
However, on Tuesday, the Financial Ombudsman challenged this figure and said the banks needed to improve their own standards of investigation. According to the ombudsman, a quarter of the claimants that banks insisted never had a policy had been paying for PPI.
The Claims Standards Council, which represents claims management firms, said that banks were attempting to shift the blame and had brought the situation on themselves, by not recognising PPI mis-selling early enough.
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