Lenders face huge bill as complaints over loan cover soar

Lenders forced to pay out millions in compensation claims

The number of complaints about Payment Protection Insurance (PPI) policies has leapt more than 70 per cent over the past three months, as campaigns by consumer groups such as Which? have motivated thousands of consumers to lodge mis-selling claims against their lenders.

According to the latest figures from the Financial Ombudsman Service (FOS), PPI-related complaints now account for more than one in three of all inquiries that it receives. Over the last year, the Ombudsman has received around 30,000 PPI complaints in total, and by the start of this month, new PPI complaints were arriving at a rate of more than 850 a week, up from 500 a week at the end of last year.

The FOS also said that, unusually, the vast majority of PPI complaints were being upheld, resulting in lenders or insurers being forced to pay compensation to thousands of customers.

Typically, the FOS upholds around 40 per cent of the complaints it receives about financial services providers. But uphold rates for PPI complaints have been closer to 90 per cent. Some companies have seen 100 per cent of PPI complaints against them upheld.

Emma Parker, a spokesperson for the Ombudsman, said many complaints were not being properly investigated by lenders before they were referred to the FOS, adding that many providers had been rejecting claims on "spurious grounds". Complainants can only turn to the Ombudsman once they have already had a formal complaint rejected by the provider in question.

Ms Parker said that the worst offenders were all well-known financial services firms. "Some of the major lenders sold PPI alongside credit cards and loans, so it's familiar names that we're seeing," she said.

She suggested that the sudden increase in complaints may be down to the high-profile campaigns that have been run by consumer groups.

"Clearly, there's been a lot of media attention, as well as campaigns run by Which? and Money Saving Expert," she said. "But we've also got financial conditions worsening, so some consumers might be pursuing complaints where they might not have in the past."

Regulators have also been cracking down on PPI over the past few months.

In February, the Financial Services Authority said it was banning the sale of single-premium PPI policies as of 29 May. In January, the Competition Commission announced that it was banning PPI policies from being sold alongside loans and credit cards as of next year.

Instead, providers will have to wait at least seven days after the sale of a loan or credit card to sell a PPI policy to the same customer.

PPI has been repeatedly criticised by regulators for being expensive and often ineffective. In many cases, it was sold alongside loans without customers being made aware that it was optional, and could add up to 50 per cent on the cost of a loan.

The onerous terms and conditions would also often make it difficult for customers to make a successful claim.

Customers who believe that they may have been mis-sold a PPI policy can use standard forms, available on websites such as Which?'s, to lodge a complaint against the company that sold them the policy.