Claims management companies are booming in the wake of the payment protection insurance (PPI) scandal. Firms have reported a huge surge in business after high street banks last week abandoned their appeal against a High Court ruling.
The climbdown by the British Bankers' Association led to estimates that the cost to the banks could top £9bn. Lloyds Banking Group alone estimated that its share of the bill would be £3.2bn.
More than 6 million PPI policies were mis-sold and with one in five victims turning to claims management firms, the industry could be in line for more than a £1bn in earnings. Average payouts are expected to be around £2,750, and claims firms charge between 20 to 40 per cent of the total, although they work on a no-win, no-fee basis. While banks advise customers to take claims direct to them, claims firms say a huge number of people will need their services.
"They don't always understand all the paperwork they've been sent by the banks and it looks like it's going to get more onerous, making it even more difficult for people to resolve their claims," said Mike Ransom, managing director at Investor Compensation, which is part of the accountancy firm Mitchell Farrar, and which was originally set up in 2003 in the wake of the endowment mis-selling scandal.
"Wherever there have been financial sales, there have been financial mis-sales," Mr Ransom said. "A business like ours is not a fly-by-night operation hoping to profit from something in the news."
He says he expects to double the number of advisers to cope with PPI-related claims in coming months, adding that it was likely to "take up to 18 months for the banks to deal with the claims, both old and new".
Paul Clark, the chief executive of Charter UK, an adviser on complaints to the banking sector, thinks that it could take up to five years. "PPI complaints are not new and are not a one off," he said.
Still, claims firms do have their critics. James Daley, editor of Which? Money, said: "Claims management firms are just taking compensation out of people's pockets. Banks should now be doing all the legwork, so there is absolutely no need to use claims management firms."
But Mr Ransom said dealing directly is not always the best option. "We've had plenty of customers who think they've been mis-sold PPI and have tried to claim themselves, but had their claim rejected out of hand."
Until recently, banks appeared to have a blanket policy of rejecting claims and letting people take them onto the Financial Ombudsman Service, which has dealt with 200,000 complaints about mis-sold PPI policies since October 2010.
"We have also had customers who have been offered a reduced amount and we've been able to negotiate extra for them," said Mr Ransom.
His firm has been working with Santander to streamline the PPI complaints process, and he says some claims with the Spanish-owned bank can now be settled within 24 hours of submission.Reuse content