Claims management companies, whose nuisance calls will be familiar to anyone in Britain with a phone, have made between £3.8 billion and £5 billion in commission from PPI payouts between 2011 and 2015, according to National Audit Office estimates.
The figure is highlighted in a new report by MPs on financial misselling and what can be done to prevent it.
MPs criticises the Financial Conduct Authority (FCA) and the Treasury over their failure to spot payment protection insurance (PPI) misselling while it was going on.
PPI was misleadingly sold alongside loans, credit cards and mortgages, and banks have been forced to pay back customers who were wrongly persuaded to take the coverage. A huge portion of consumers who had PPI never knew they were paying for it.
The report by Parliament’s Public Accounts Committee (PAC) calls for the FCA and Treasury to “do more to know how much mis-selling is happening now, and which regulatory activities work best to prevent it.”
It also highlights “a failure of the system of regulation and redress that claims management companies have been able to make up to £5 billion out of compensation to victims of mis-selling.”
Claiming compensation for missold PPI is free through the financial ombudsman. But 80% of those who claim compensation choose to do it through a claims management company, which can take up to a third of the eventual payout.
MPs say “the public bodies involved have been too slow in taking responsibility for this situation, and too passive in allowing it to happen.”
More than 12 million consumers were mis-sold PPI and firms have paid over £22 billion in compensation to them since April 2011, the report says.
Britain’s financial regulator notes that more than 95% of all repayments on PPI have been made by just 23 firms. The UK’s biggest five banks — HSBC, Lloyds, Barclays, RBS, and Santander — have set aside a combined £32 billion to deal with the claims, according to the Guardian.
As part of its misselling probe, the PAC is calling for the FCA to do more to control banking cultures, after the regulator abandoned plans for a probe on cultures last year. PAC chair Meg Hillier MP says in a statement:
It is vital the Government and regulators take fresh action now to better protect taxpayers’ interests, both in reducing the potential for mis-selling and, when it does occur, to ensure those affected get their due compensation.
We heard evidence of some diverse causes for products being mis-sold, ranging from incompetent or intimidating sales teams to badly designed and poorly targeted products.
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.
This sends a confused message to taxpayers and will do little to reassure potential customers.