Avalanche of insurance scandal claims

The problem of mis-sold payment protection policies is still growing, says Neasa MacErlean

Record numbers of consumers are predicted this year to have problems claiming on payment protection policies (PPI), with the result that many will make a formal complaint and even take their case to the Financial Ombudsman Service.

Despite a widespread belief that the problem has peaked, the Ombudsman has just warned that it is still growing to avalanche dimensions.

Some 20 million of these policies have been sold. They were usually designed to cover loan or credit cards repayments if the policyholder became unwell or unemployed, but they were widely mis-sold to individuals who either did not need them or would be unable to claim.

In its annual budget plan, published yesterday, the Ombudsman predicted that PPI cases will absorb half its resources, amounting to the resolution of 130,000 cases, during the 2012/13 financial year. This represents a 55 per cent increase on the projections it made 12 months ago when it predicted the resolution of a maximum of 84,000 PPI cases for the current financial year.

Advice agencies are also on the alert regarding both the volume of complaints about these policies and the way that the product providers – mainly the banks – are dealingwith them.

Citizens Advice Scotland (CAS) is "keeping a very close eye" on how banks are resolving complaints. Susan McPhee, head of policy at CAS, says: "We have certainly seen some clients who have reported difficulties, but it's not yet clear whether these are isolated examples or a more definite, widespread trend."

The Citizens Advice service in England and Wales is braced this month for an increase in queries on PPI, following the holiday period when claims management companies are likely to have found more people at home responding to their cold calls. These companies are the source of over a quarter of PPI claims, although the process of claiming through the Ombudsman is simple and can easily be done without a (fee-charging) adviser.

A couple of years back, the Ombudsman was expecting "a significant reduction in the volume of PPI complaints" coming before it. But that prospect has been derailed by the declining economic climate (which means more policyholders examine their insurance policies to see if they have a potential mis-selling claim) and the unsatisfactory complaints-handling of numerous banks.

Publicity about the potential to claim has been provided by complaints-handling organisations, and consumers have become more aware of their rights in this area.

Another turning point was last spring's judicial review of the Ombudsman by the banks. The banks had sought to reduce the ambit and influence of the Ombudsman, but found its role upheld in the High Court.

After the decision, the banks were given a few months to get their systems straight. Although they say they are working hard on stopping future mis-selling and compensating people swiftly, the Ombudsman is seeing delays and a deterioration in complaints-handling by some providers.

On yesterday's budget plan, the chief Ombudsman, Tony Boorman, said: "It's disappointing that there's little finality for significant numbers of consumers who are still waiting for their bank or insurer to deal with their complaint."

Putting the issue more positively, Brian Capon, spokesman for the British Bankers' Association, says: "There are a few delays at present, but the banks are working hard to deal with the complaints as quickly as they can. The process is taking longer than we or the banks would like, but this is getting serious attention from senior management and the banks are keen to move things on more quickly."

The main banks were given an extra four weeks by the regulator to reply to complaints from PPI policyholders. That extra leeway was removed on 1 January, so they now have the standard eight weeks in which to reply to a complaint. After that stage, policyholders can take the issue to the Ombudsman. Since the Ombudsman is upholding about half the PPI claims it receives, this step is often well worth the effort.

People who are unhappy with their policies – typically because they have grounds to believe they cannot successfully claim – can follow this procedure themselves, without using lawyers or complaints management companies. These advisers charge a fee, usually of several hundred pounds. (See case study.)

CAS is finding two particular problems now among its clientele: "... that banks are not communicating with clients on when they will receive the refund, and they are also not advising that any refund made will be used to repay any outstanding loans arrears the client may have."

At the moment, banks have largely stopped selling these policies. "They have effectively been stopped by the Competition Commission from selling this and similar products when they arrange loans or credit cards for consumers," says the financial services compliance consultant Adam Samuel. However, he adds: "There are rumours of PPI mark two policies being created."

The regulator, the Financial Services Authority, is consulting about how mis-selling can be prevented here. Meanwhile, Citizens Advice "has always been very supportive of PPI as a concept", says its director of policy, Teresa Perchard. Citizens Advice will be urging the creation of "a simple, fair deal PPI going forward" when the Treasury researches the issue this year.

However, some experts are unconvinced that the banks can sell in a simple way. When asked if mis-selling would stop as a result of the bad publicity on PPI, Mr Samuel says: "No. This is endemic in most banks who cannot focus on the idea that the margins they make from their core businesses of deposit-taking and lending are actually quite respectable. The business model is all too often one of thinking of things to flog to the consumer, not meeting consumers' needs."

John Gould, senior partner of Russell Cooke, the firm which represented the Ombudsman in last year's judicial review, is not misty-eyed about the prospect of change. Interviewed by the legal website Butterworths LawLeader, he says: "They will play it commercially. The great problem is that banks made a huge amount of money out of PPI. It remains to be seen whether the amount of money they give back will equal what they made. It's unlikely."

In other words, if mis-selling still translates into profits then it could well continue.

For their part, the banks say that they have changed their ways. Barclays, for instance, uses mystery shopping, customer callbacks and other methods to tackle mis-selling. If a member of Barclays' staff is found to have mis-sold, rules introduced since the PPI scandal emerged mean he or she can lose their bonus incentives for the year.

On their handling of compensation claims, the banks have not covered themselves in glory. Lloyds TSB is the only one of the big four to accept complaints online, according to research by Which? And, in cases where premium repayments are agreed, HSBC is unusual in getting repayments out to customers in under a week. Some bank customers have been waiting months.

As the Ombudsman gears up for 2012, it is also braced for an increase in cases of "entrenched disputes" which take longer to solve. An Ombudsman spokeswoman suggests some banks are having difficulties dealing with the simpler complaints. She says: "In discussions we've had recently with some of the larger businesses, it seems some are not fully geared up to deal with PPI complaints."

Compensation on PPI has been averaging £2,750, although, as the Ombudsman says: "This can vary considerably, depending on the individual complaints".

Case studies: Blundering banks and the problem of claim managers' fees

Citizens Advice Bureaux in Scotland have recently dealt with these cases:

Miss X, aided by a claims management company, won a repayment of £3,290, which was set off directly by the bank against her loan. However, she was expecting that an £800 fee to the claims manager would be paid first. She now has a debt of £800 to the claim company.

A bureau helped a newly unemployed client make a claim on her PPI policy. But the bank told her she must agree to having the payment set off against the two loans she has with the bank. The bureau says: "Nowhere in this letter was there any mention of how much of a refund was being paid." Meanwhile a debt collection agency has been pursuing her for full repayment of the loans.

Mr Y was told by his bank that a payment would be made to him "as soon as possible". Ringing up to find out when, he was told that the previous information given to him on timing was wrong and that there was no guideline timescale.

Mr Z was told he would be getting a PPI compensation payout into his account of £2,300. He then withdrew £1,000 from his account. The day after, that same account was debited by the bank, leaving him with an overdraft of £800. He has no idea why this has happened and has been told the matter is under investigation.

British Bankers' Association: www.bba.org.uk/customer

Citizens Advice (England and Wales): www.citizensadvice.org.uk and www.adviceguide.org.uk

Citizens Advice Northern Ireland: www.citizensadvice.co.uk

Citizens Advice Scotland: www.cas.org.uk

Financial Ombudsman Service: www.financial-ombudsman.org.uk and 0800 023 4567

Which? guide to reclaiming PPI: http://www.which.co.uk/news/2011/05/60-second-guide-to-reclaiming-ppi-252928/

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
Life and Style
The veteran poverty campaigner Sir Bob Geldof issues a stark challenge to emerging economies at the Melbourne HIV/Aids conference
health
Arts and Entertainment
Benedict Cumberbatch and John Malkovich talk Penguins of Madagascar at Comic-Con
comic-con 2014Cumberbatch fans banned from asking about Sherlock at Comic-Con
Arts and Entertainment
Chris Pratt stars in Guardians of the Galaxy
filmGuardians Of The Galaxy should have taken itself a bit more seriously, writes Geoffrey Macnab
News
Sir Chris Hoy won six Olympic golds - in which four events?
news
Life and Style
People may feel that they're procrastinating by watching TV in the evening
life
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee Recruitment Consultants - Banking & Finance

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

    Graduate Recruitment Resourcers - Banking Technologies

    £18000 - £25000 per annum + OTE £40,000: SThree: Huxley Associates are looking...

    Associate Recruitment Consultant - IT

    £20000 - £25000 per annum + OTE £40,000: SThree: Computer Futures has been est...

    Business Analyst

    £300 - £350 per day: Orgtel: Job Title: Business Analyst Rate: £300 - £350 per...

    Day In a Page

    Backhanders, bribery and abuses of power have soared in China as economy surges

    Bribery and abuses of power soar in China

    The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
    Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

    Highland terriers steal the show at opening ceremony

    Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
    German art world rocked as artists use renowned fat sculpture to distil schnapps

    Brewing the fat from artwork angers widow of sculptor

    Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
    BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

    BBC takes viewers back down memory lane

    The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
    Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

    Nicolas Cage shines in low-budget drama Joe

    Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
    How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

    Make your own ice lollies and frozen yoghurt

    Think outside the cool box for this summer's tempting frozen treats
    Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

    Fiesta is UK's most popular car of all-time

    Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
    10 best reed diffusers

    Heaven scent: 10 best reed diffusers

    Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
    Commonwealth Games 2014: Female boxers set to compete for first time

    Female boxers set to compete at Commonwealth Games for first time

    There’s no favourites and with no headguards anything could happen
    Five things we’ve learned so far about Manchester United under Louis van Gaal

    Five things we’ve learned so far about United under Van Gaal

    It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
    Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

    Screwing your way to the top?

    Good for Lana Del Rey for helping kill that myth, says Grace Dent
    Will the young Britons fighting in Syria be allowed to return home and resume their lives?

    Will Britons fighting in Syria be able to resume their lives?

    Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
    Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

    Beyoncé poses as Rosie the Riveter

    The wartime poster girl became the ultimate American symbol of female empowerment
    The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

    The quest to find the perfect pair of earphones

    Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
    US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

    Meet the US Army's shooting star

    Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform