PPI insurance claim management companies pocketed £5bn from scandal that could happen again, MPs warn

New pension freedoms allowing people to cash in their retirement savings could be the trigger for the next mis-selling scandal

Claims management companies pocketed up to £5 billion by taking a cut of compensation claimed on behalf of consumers mis-sold payment protection insurance, a report by MPs has shown.

The Public Accounts Committee expressed disappointment that companies profited from the mis-selling of insurance by taking a cut of between a quarter and a third of any successful claims.

Victims of the scandal could have made a claim for compensation completely free by going directly to the Ombudsman in what the Committee called "a failure of the system of regulation and redress".

But this "failure of the system" meant some of the 12 million consumers mis-sold insurance missed out on the full compensation available to them.

Over £22 billion has been paid out in compensation since 2011. Over 80 per cent of the claims made between 2014-15 were through claims management companies now infamous for their persistent cold calling.

Consumers were agressively sold insurance to protect payments on mortgages, loans and credit cards from the 1990s onwards by banks, who were later revealed to be making huge profits on the payments.

In 2005, Citizens Advice labelled the service a "protection racket" and claimed the insurance offered was expensive, ineffective when a customer needed it to keep up with payments, sold to people who would never be able to claim, and inefficient, with long delays for claimants.

The Public Accounts Committee has called for action to be taken to stop such a scandal from occuring again.

"It is deeply worrying that while the FCA has taken some action to deal with these causes, it has since scrapped plans for a review of banks’ culture—this despite it being best placed in the system to conduct such a review," Meg Hillier, chair of the Committee, said.

New pension freedoms allowing people to cash in their retirement savings could be the trigger for the next mis-selling scandal, the report said,