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

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."

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
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

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

    Recruitment Genius: Compliance Manager

    £40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

    SThree: Talent Acquisition Consultant

    £22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

    Day In a Page

    John Palmer: 'Goldfinger' of British crime was murdered, say police

    Murder of the Brink’s-MAT mastermind

    'Goldfinger' of British crime's life ended in a blaze of bullets, say police
    Forget little green men - aliens will look like humans, says Cambridge University evolution expert

    Forget little green men

    Leading evolutionary biologist says aliens will look like humans
    The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

    The Real Stories of Migrant Britain

    An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
    Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

    Dying dream of Doctor Death

    Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy
    UK heatwave: Temperature reaches 39.8 degrees on Central Line - the sweatiest place in London

    39.8 degrees recorded on Tube

    There's hot (London) and too damn hot (the Underground). Simon Usborne braved the Central line to discover what its passengers suffer
    Kitchens go hi-tech: From robot chefs to recipe-shopping apps, computerised cooking is coming

    Computerised cooking is coming

    From apps that automatically make shopping lists from your recipe books to smart ovens and robot chefs, Kevin Maney rounds up innovations to make your mouth water
    Jessie Cave interview: The Harry Potter star has published a feminist collection of cartoons

    Jessie Cave's feminist cartoons

    The Harry Potter star tells Alice Jones how a one-night stand changed her life
    Football Beyond Borders: Even the most distruptive pupils score at homework club

    Education: Football Beyond Borders

    Add football to an after-school homework club, and even the naughtiest boys can score
    10 best barbecue books

    Fire up the barbie: 10 best barbecue books

    We've got Bibles to get you grilling and smoking like a true south American pro
    Wimbledon 2015: Nick Bollettieri - Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power

    Nick Bollettieri's Wimbledon Files

    Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power
    Ron Dennis exclusive: ‘This is one of the best McLaren teams ever – we are going to do it’

    ‘This is one of the best McLaren teams ever – we are going to do it’

    Ron Dennis shrugs off a poor start to the season in an exclusive interview, and says the glory days will come back
    Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

    Making of a killer

    What motivated a shy student to kill 38 holidaymakers in Tunisia?
    UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

    Just when you thought your commute couldn't get any worse...

    Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
    Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

    The Real Stories of Migrant Britain

    Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
    Cheaper energy on the way, but it's not all sunshine and rainbows

    Cheaper energy on the way, but it's not all sunshine and rainbows

    Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most