PPI claims firm confusion: 39% unaware of direct claims
39% of people that used a claims management firm to reclaim payment protection insurance (PPI) did so because they didn't realise there was an alternative, according to research released by Citizens Advice this week.
The PPI claims industry has swallowed up just under £5 billion worth of payments that should have gone directly to consumers, the charity says.
PPI claims firms "thrive because consumers are not fully aware of their rights to claim directly" so their ongoing success is yet more evidence that the banks mishandling of the PPI crisis led directly to further consumer detriment, the Citizens Advice report claims.
Earlier this week, the Financial Ombudsman Service (FOS) revealed that over 1,000 people a day are still getting in contact with them for help resolving PPI disputes with their banks.
"The extraordinary volumes of financial complaints we saw in 2013 now looks as if they're starting to level off at last," Chief Ombudsman Tony Boorman said.
"But we're still a long way from being able to say that PPI is sorted once and for all."
Claims firms cashing in
In 2012, £9 billion allocated by banks for PPI redress and the FOS estimated that around 20% of that, about £2 billion, would go directly to the claims firm industry.
Assuming that trend has continued, claims firms have now made around £5 billion in total (based on the banks setting aside £22 billion to cover costs).
Claims firms existed before PPI but there's no doubt that the scandal reinvigorated the industry, and paved the way for many less than scrupulous companies to enter the market.
In 2010, the number of complaints the FOS received from claims firms increased from 28% to 45%, driven entirely by the huge increase in PPI complaints that year.
At the same time, this week's Citizens Advice report says, complaints increased.
Problems with claims firms
Some problems Citizens Advice saw with claims firms have now been resolved.
For example, of the 240 calls to the consumer helpline about PPI claims firms last year, 38% concerned upfront fees.
The most common problem with lump sum fees is that, having taken the fee, the company is often slow to pursue the claim or to give the fee back, if the claim is unsuccessful.
As a result of changes to the rules on fee charging, however, no claims firms currently charge upfront, preferring to take a percentage of the redress.
However, many other problems continue, most commonly:
- More fee confusion: customers might find that the percentage fee taken was more than they expected.
- Problems cancelling: under distance selling regulations, claims customers have the right to cancel within a 14-day 'cooling off' period, a right that isn't always recognised and respected.
- Debt collection: when claims firms are owed fees they often call in the debt collectors, sometimes too quickly or aggressively.
- Annoying marketing: less seriously, but affecting far more people, are the annoying marketing campaigns, particularly recorded calls and spam texts, the PPI claims firms have bought us.
Citizens Advice found that wealthier consumers were more likely to be pursued this way, even though they were less likely to use a firm to make a claim than less wealthy consumers.
It's interesting that, with all these problems, this week's Citizens Advice report doesn't actually condemn claims firms as much as you might think.
Many people are happy to use the firms, it says, and that's because many firms follow the rules and treat customers fairly.
"The [claims firm regulator] needs to come down hard on non-compliant [claims firms] which tarnish the image of the [claims firms] which obey the rules," the report says.
For others, greater regulation won't go far enough.
With a properly planned redress scheme, some argue, claims firms shouldn't need to exist and instead the consumers who were mis-sold or otherwise suffered as a result of badly behaving financial firms should get the full amount they lost as a result.
That point of view seems to have already driven the CPP redress scheme, though we'll have to wait to see whether consumers truly end up better off: it could lead to many not making a claim at all.