Legal eagles hover, ready to pick banks' bones on PPI
Claims experts are cashing in as policyholders seek redress in the latest mis-selling scandal – payment protection insurance. Julian Knight reports
Sunday 02 November 2008
For good or ill, litigation has become a part of the British way of life. It started with law firms offering to win compensation for people involved in accidents. They operated on a no-win, no-fee basis and tempted consumers with catchy advertising slogans such as "where there's blame, there's a claim".
It was probably inevitable, over time, and considering the financial-services industry's habitual mis-selling, that some law firms would turn to representing people who had been wronged by Britain's banks and insurers.
First, just after the millennium, the legal firms started to offer to bring cases for people who thought they had been mis-sold endowment policies and personal pensions in the 1980s and 1990s. The firms would take the details of the claim from the consumer and then approach the insurer and ask for compensation. If the claim was rejected, they would then move on to the Financial Ombudsman Service (FOS).
More recently, as the public furore over punitive bank charges increased, these same firms started to offer to take up the cases of consumers who had been penalised for going into the red. But with potentially hundreds of millions at stake and the banks and the Office of Fair Trading locked in a high-court battle over the legitimacy of bank charges, the Financial Services Authority (FSA) has ordered that all consumer claims for a refund be put on ice for the time being.
So the legal firms have moved on, this time to the mis-selling scandal of the moment – payment protection insurance. PPI offers to pay out if a policyholder becomes unable to work, through illness or redundancy, and cannot pay off a mortgage, a loan or a credit card. It is a big moneyspinner for the banks and insurers, worth an estimated £5.5bn a year. But it has long attracted the fire of consumer groups who claim that the insurance is massively overpriced and is full of get-out clauses so that the provider doesn't have to pay out even if a policyholder is ill or has been made redundant.
The FSA seems to concur that PPI has its flaws, as it has fined a host of providers for mis-selling. The most recent and biggest fine was handed out a few weeks ago to Alliance & Leicester. The bank was fined £7m for the potential mis-selling of PPI over a period of nearly three years.
No wonder the legal eagles are hovering, ready to pick the bones of the banks.
"Millions of people have been systematically mis-sold these policies and they deserve their premiums refunded," said Andy Humphries, managing director of Renaissance Easy Claims, a claims management firm.
Mr Humphries's figure on the number of people mis-sold PPI is probably not as fanciful as it first seems. Alliance & Leicester, following the FSA fine, is currently writing to 211,000 loan customers who bought PPI from it between January 2005 and December 2007, informing them of how to make a complaint if they feel they have been mis-sold.
"Some of the instances of mis-selling are quite blatant," said Dan Hayes, a solicitor specialising in PPI for Keypoint Legal Services. "Retired people who are too old to claim on the policy and do not need it as they are on a pension income have been sold these policies. Another common abuse is mis-selling to self-employed people who are not allowed to claim for redundancy under the terms of the contract."
But these "no-win, no-fee" firms aren't taking on the banks out of the goodness of their heart, there is, of course, a fee to pay.
"We charge 25 per cent plus VAT – paid out of the compensation won – which is pretty typical," Mr Humphries said. "We don't pretend that you can't complain to the firm yourself and, even if they reject it, then go to the Financial Ombudsman Service. However, it's a lot of hassle, and time consuming, and people have busy lives. It's the same as employing a handyman to do your painting and decorating; sure, you can do it yourself, but you can save time and have a better job done by getting someone in."
Mr Hayes added that using a legal firm to pursue a PPI mis-selling claim can also help overcome some of the tactics employed by the banks and insurers to put claimants off.
"Rejection letters [issued by banks and insurers once a compensation claim is investigated] will give lots of what, to the untrained eye, look like plausible reasons for turning down a claim. However, we can spot these bogus excuses and will pursue the claim. If we believe in a claim we will pursue it to the FOS and if we have no luck there we can even appeal the FOS decision on our customer's behalf," Mr Hayes said.
But the FOS is becoming inundated with claims as banks and insurers choose to reject initial approaches for compensation. "We are encountering huge delays with the FOS at present. Some cases are taking up to 10 months to resolve as the banks and insurers drag their feet," Mr Humphries said.
On the other hand, though, Alliance & Leicester said that the increasing involvement of claims companies is causing delays and confusion. "These companies often use template letters which may not properly reflect the issues customers who are making the complaint actually have. This means we have to write back for more details, which holds the process up," said Steve Gracey from Alliance & Leicester.
"Anyway, we have systems in place to deal with mis-selling claims; which customers can easily access on their own. It confuses the process if third parties get involved," he said.
Banks and insurers in general have long had a strained relationship with claim management firms. Anthony Frost of Abbey said: "My thoughts are that people can do this for themselves. If they think they have been mis-sold they should approach the bank or insurer in question. If you are paid compensation, they will take between 30 and 40 per cent of what you win for doing, often, very little."
Mr Frost added that when he used to work at Prudential, the insurer, it took a decision to no longer deal with claim management firms which were chasing compensation over endowment mis-selling: "A firm line was taken not to deal with these companies, customers don't need to go to them," he said.
Stuart Glendinning, from the price comparison website moneysupermarket.com, said that the advent of PPI mis-selling claims management may encourage frivolous claims: "The worry I have is that some of these firms will want everyone who approaches them to complain, regardless of the circumstances of the case." In response, the claim management firms say that they vet their clients carefully and do not pursue bogus or frivolous claims.
Mr Glendinning is also concerned that some policyholders could be dispensing with insurance just when they need it most.
"People thinking about complaining need to ask themselves – is this a good time to do without insurance in case of unemployment? We are in a recession and people will lose their jobs as a result," Mr Glendinning said. "I have already heard of instances where people have had their PPI refunded and then gone on to lose their jobs soon after."
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
iJobs Money & Business
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens