Sometimes it can seem PPI has been with us for the last hundred years.
Hundreds of thousands …. millions of words have been written about it and the rogue trading of the cold callers who have blighted our lives have turned it into a dirty word.
Indeed, just lately, the publicity has been so vociferous about claims management company ‘vultures’ and ‘ambulance chasers’ said to have been ‘raking in’ billions of pounds worth of clients’ fees that it’s easy to lose sight of what the scandal is really about
But not all CMCs should be tarred with the same brush. The Gladstone Brookes Promise says we don’t cold call people, ever, and we have recovered more than £650 million for our clients.
In the early days of what has turned out to be one of the biggest single scandals in British financial history, there were a few rumblings about the insurance not really being value for money.
In 2005, Citizens Advice labelled the mis-selling of payment protection insurance as ‘a protection racket’, sold to consumers who either didn’t want it, didn’t need it or could never have made a claim on it.
They were something of a lone voice crying in the wilderness. But that all started to change in 2007-08 when the then regulator – the Financial Services Authority (FSA) – started to fine companies for their mis-selling practices, the biggest of which was a £7 million levy against Alliance & Leicester.
It was at this point CMCs started to bring their expertise of handling claims to help the rapidly growing number of consumers who wanted to make a claim, but were not sure how.
Their marketing campaigns started to educate customers about their rights and the number of ways in which they might have been mis-sold PPI – including never being told they’d signed up for it in the first place.
The level of claims was still comparatively low, but the banks were starting to worry about how quickly the levels of compensation paid out for successful claims was rising.
The massive change came in 2011 when the British Bankers’ Association lost a Judicial Review which forced them to change the way complaints were investigated.
The publicity over the decision caused the number of complaints to explode and so did the levels of compensation. Immediately after the judicial review, the FSA reported the banks had paid out £39.8 million for mis-sold PPI policies in May 2011. A year later that figure had sky-rocketed to £735.3 million for a single month!
Since then, CMCs are said to have been responsible for up to 80% of mis-selling claims and the banks have now paid out a total of £23.8 billion.
Why so many?
But why have there been so many successful complaints? One possible reason was given this week by a former PPI insider who blew the lid off the banks’ attitude to the mis-selling culture which put profit above fairness to customers.
Writing anonymously in the London Evening Standard, he tells how, way back in 2006, he was asked to form a special team by one of the high street banks to ‘monitor risk and compliance’ in its retail banking operation.
What he found shocked him.
He says: “My team visited branches and discovered selling practices that were bordering on fraudulent. They identified major system flaws at head office. They talked to customers and gained shocking insights into how the bank treated (or mistreated) them.
“The two most obvious risks were the way branches sold loans, and how they sold PPI to support those loans. Or, in reality, the other way around: the bank sold loans, at interest rates which could not possibly be profitable, to support the sale of PPI. Their targets and rewards for selling PPI were enormous. It had become the entire retail division’s profit stream, its raison d’être.“
He goes on to say his reports were ignored and ‘disappeared into political quicksands’ before his team was disbanded.
A year after the dam broke and the banks were deluged with claims, Daily Telegraph Personal Finance Editor, Paul Farrow, commented on the activities of CMCs in exposing the level of mis-selling by the banks.
He says: “There is an argument that claims management companies do have a positive role to play. They certainly did during the endowment mis-selling scandal around a decade ago, when many home owners received compensation after their own efforts to get a payout were blackballed by lenders.
Hard-nosed tactics by claims handlers certainly got up the backs of lenders whose complaint procedures were found to be wanting – and many home owners soon got their just reward.
“And history is repeating itself with PPI. Only a couple of weeks ago I was talking to a cab driver who had just come back from a fortnight in the Caribbean – even though trade had been dire thanks to the recession – and all because he received PPI compensation that he had no idea that he was entitled to.
“’I got this call from one of those claims companies and I thought what the hell,’ he said. ‘Sure, they took their fee, but I didn’t even know I was entitled to any compensation so it was like getting free money.’
“This makes you wonder about the real reason why banks are miffed with complaint handlers, whose complaints account for almost 70pc of those investigated by the Financial Ombudsman Service (FOS). Without them, they would be paying out far less,” he concluded.
Is it over?
So has the great PPI scandal now run its course? No – not by a long chalk.
The banks are bracing themselves for a flood of new claims when the long awaited PPI deadline is finally announced by the Financial Conduct Authority (FCA).
It is impossible to say how many claimants will come forward, but in recent months the banks have been added £7.6 billion to their PPI provision for future successful claims. They have now set aside a total of £33.73 billion – £10 billion more than they have already paid out.
The FCA is expected to make an announcement, possibly in the summer, about the timing of the proposed deadline when their review of how the banks have dealt with PPI is finally concluded.
It is widely expected the deadline would run for two years until 2018. Any consumer who hasn’t made a claim by the end date would lose the right to do so forever and lose any possible compensation.