Record numbers of customers are claiming they have been missold personal payment protection (PPI), the discredited insurance taken out to guarantee instalments for mortgages, loans and credit cards.
The number of PPI cases taken on by the Financial Ombudsman Service (FOS) surged by 50 per cent from 1,499 in January to a new high of 2,238 last month, making it the most complained about area of personal finance.
The FOS, which released the figure yesterday, expects the number of complaints to rise sharply in coming months once customers have failed to obtain a satisfying solution from their insurer, which they must do before submitting a complaint to the dispute resolution service.
Campaigners have been urging people to reclaim PPI as a result of rampant misselling in the past, which the Financial Services Authority has sought to stamp out with fines of up to £1m on 12 financial institutions, including HSBC's HFC Bank. Although PPI can be a sensible precaution for people worried about losing their job or falling ill, campaigners estimate that as many as half of the 20 million policies currently in force, £10bn worth, may have been missold by salespeople, many working on a commission basis.
First, potential borrowers were often told – wrongly – that they would not be able to take out loans unless they also took out a PPI policy. Secondly, many policy-holders could never have claimed because they were self-employed or had a pre-existing medical problem.
Generally, PPI pays back to consumers only 20 per cent of premiums, far less than other forms of insurance. Home insurance pays back about half of its income, car insurance returns about 80 per cent.
The campaign opens a second front in the mass revolt against overcharging by financial institutions, which has been championed by The Independent. Hundreds of thousands of bank and building society customers have claimed back up to £30,000 for current account penalty fees for bouncing a cheque or going over an overdraft limit.
However, almost all claims have been put on hold pending the result of a High Court test case on the legality of the charges, brought by the Office of Fair Trading against seven high street banks and the Nationwide Building Society. A ruling from the judge, Mr Justice Andrew Smith, is not expected until next month.
When the ruling is made, the banks or the OFT are likely to become bogged down in further legal wrangling, which could postpone settlement of existing claims for months or even years.
The OFT estimates that current account providers make between £2bn and £3.5bn a year from penalty charges, much less than the £5bn collected by the PPI industry, suggesting that the PPI revolt could dwarf the bank charge campaign.
Websites which.co.uk and moneysavingexpert.com are urging people to check whether they have the policies and complain – if appropriate – using forms published on their sites.
Doug Taylor, the personal finance campaigner at Which?, said: "Which? has identified in the past a series of misselling problems with PPI and we welcome the fact that many customers are taking action to recover misselling. However, this is the tip of the iceberg and we are anticipating that the campaignwill increase and more and more cases will go forward in the future."Reuse content