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."
Crowd-to-let: How crowdfunding sites can give investors a slice of the property market for £500
After the election: What will Britain's financial future look like on 8 May?
General Election 2015: How you vote next week could affect your finances
Social tenants locked into energy tariff for 40 years
Five Questions On: GB Energy's new tariff
- 2 General Election 2015: 14-year-old boy asks Nick Clegg – 'can you kill Katie Hopkins?'
- 3 University student in court for allegedly covering housemates' food in window cleaner and spit
- 4 Ryan Gosling posts tribute to 'Ryan Gosling Won't Eat His Cereal' creator Ryan McHenry
- 5 Garland shooting: Isis claims attack on Prophet Mohamed cartoon contest in Texas as its first action on US soil
In defence of liberal democracy
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
General election live: SNP suspends two members for disrupting Labour rally
iJobs Money & Business
£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...
£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...
£215 per day: Ashdown Group: Junior Project Manager (website, web application ...
£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...
Day In a Page
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
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
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings