Payment Protection Insurance (PPI) has been the biggest financial mis-selling scandal of the last ten years.
Recent figures reveal that just £3.5 billion of the £10 billion set aside by banks has been claimed back in compensation.
The huge amounts of money on offer have led to a rise in the number of claims management companies (CMCs) who will manage the proces for you in return for a fee, usually around 25 per cent of the compensation payment.
Consumer groups Which? and MoneySavingExpert.com have launched a campaign to encourage potential claimants to manage the process themselves so that they get to keep all of any compensation refunded.
I spoke to Craig Lowther, managing director, of MoneyBoomerang, an established CMC to discuss some of the common criticisms of CMCs, how his company avoids bad practices, the campaign by consumer groups and the role of banks in creating the problem in the first place.
- Just 35 per cent of the £10billion potential available has made it back to consumers. Why do you think consumers are reluctant to claim?
While there are still many people out there who are unaware they are entitled to claim for the banks' mis-selling of Payment Protection Insurance (PPI), the bigger problem we are seeing at the moment is that the banks are reluctant to pay out for their mistakes. The Financial Ombudsman Service is currently being inundated with cases where lenders have turned down a claim, only for the Ombudsman to rule clearly in the customer's favour.
How does your claims system work - What do claimants have to provide?
In the first instance, our expert Customer Engagement team will speak to a client and establish if a claim can be made. The next step is to take the client through the fee structure and terms and conditions. We pride ourselves on our transparency and it is important the client knows exactly what they can expect and the service that we provide.
The client will then receive a claims pack where they can once again review our terms and conditions. If they are happy and wish to proceed, the client will give us all the relevant details and we will start the claims process. Depending on the individual case, the whole process can take up to two or three months.
How easy is it to ascertain if a potential claimant has a valid claim?
The selling of PPI products was so poor that often a client may have numerous reasons to argue that they were mis-sold a product. Our job is to make sure these reasons are identified and presented correctly to the lender in order to build a case and process the claim.
What happens if they don't have the paperwork?
In many cases the finance may have been settled some years ago and it is not uncommon for clients not to have any paperwork at all. Provided the client knows the name of the lender, the approximate date the product was taken out, and the correct address they were living at at the time, we will normally have enough information to allow us to contact the lender and process a claim.
What do you charge?
We have a very transparent charge of 25% plus VAT. We never charge any money up front.
What some people may not be aware of is that some of our clients' claims go back many years. As such we are often able to secure a payment of 8% statutory interest for our customers, which, over a period of years, can add up to a considerable sum. The means the interest can go a long way to offsetting our fees.
What do you think is a valid way of managing a claim and what practices does your company avoid that others don't?
I think you have to act with integrity, honesty and openness for the consumer. It is important that we are completely transparent with our customers at every stage of the process.
We have always avoided taking any money from the client up front. We do not think this is ethical or fair.
We’ve heard of some companies taking cash payments over the phone immediately and without even giving the customer a copy of their terms and conditions, or any chance to cool off. This is highly unethical and we think this particular practice should be banned outright or, at the very least, more tightly regulated. It is underhand practices like these that give the PPI industry a bad name.
How do you think you provide your claimants with value-for-money?
With nearly a decade of experience, we are one of the longest established PPI reclaim firms in the market and were the first to advertise on national television to help raise awareness of this issue over four years ago.
Over that time we have gained more experience in dealing with all manner of PPI cases than some recent entrants to the market who are providing shoddy levels of service in expectation of an easy way to make money. This is not our style.
We have invested tens of thousands of pounds in software to ensure we offer the best and most efficient claims service. Having a better working knowledge than many of our competitors means we can identify more cases for each customer and push lenders for previous PPI policies they may not disclose.
We aim to make the process as easy as possible for customers, particularly those with multiple claims who may find it challenging to manage the information they need to starting pursuing these claims.
Banks are complaining that some CMC's are clogging up the system with invalid claims. Do you think this is because they think banks will cave in and repay anyway?
This may just be a way of deflecting attention away from the real culprits here: those that sold PPI in the first place.
If a bank was to see an invalid claim, they would not pay. Therefore, it makes no sense for us to take the time to liaise with client, build a case and then put it to a lender, only for it to be rejected.
In truth, many people in the industry have realised that it is better to build bridges rather than fight against each other. For example, we have recently been approached by a major lender asking us to notify them of new cases so they can fast track the identification of a PPI policy or not. This will speed up the process for the consumer and reduce administration costs for the lender. In time we hope that all lenders will adopt this approach.
Do you have any sympathy with the banks point of view on this?
To a degree, the PPI claims industry is a mess. This is obvious because the industry – which should be helping consumers – is now receiving as much backlash from consumers as the lenders who were responsible for the problem in the first place.
Ten years ago this was an industry with a great deal of integrity, but now there are too many cowboys. Companies knowingly submit claims even when they know there is no PPI policy. It is not right to act in this way.
Having said that, lenders must remember they failed to put in place the appropriate measures to ensure PPI was sold correctly. Indeed, some finance agreements had PPI attached without the customers' knowledge or consent.
Banks should not be looking to apportion blame elsewhere. The time for finger pointing is long gone. The banking industry needs to rid itself of its poor reputation and compensating the victims of its previous indiscretions is a large part of that.
Do you think that claiming PPI compensation is a simple process as Which? and MoneySavingExpert.com claim?
We are not saying that people cannot claim themselves, but the process is not as simple as filling out a template form.
Each case is different and requires a different approach. For example, what about cases where the lender is insolvent? What about cases which fall outside of the January 2005 Financial Services Authority remit? What about cases where lenders simply do not respond to the letter of complaint? What about customers claiming on behalf of a deceased person?
Our role is to ensure that each claim gets the appropriate tailored response to ensure that moves quickly through the claims process and gets the best chance at being successful. A downloadable template cannot do this.
We are not assuming that everyone is time poor or lacks an understanding of the systems and processes to ensure their claim is successful, but we are providing a reliable and useful service for those who aren't sure or just need some help.
What do you think of their campaign to "demystify" the PPI claims process?
Anything that helps the consumer is a good thing. However, I would urge caution on suggesting the PPI claims process is a walk in the park.
So many cases we deal with have little idiosyncrasies that a ‘paint by numbers' PPI claim form simply would not be able to help you with. Sometimes, professional advice is the game changer for winning or losing a claim against a lender.
Do you think that in that instance, and this, that CMC's have a positive role to play on behalf of consumers in putting pressure on banks and other providers more effectively than an individual could?
I certainly think that without the ability of CMC’s to raise awareness on such a large scale, the banks would have successfully avoided having to make such large provisions.
The sheer size of the PPI scandal is unprecedented but a key part in this was bringing the problem to the attention of the public and gaining momentum in their quest for justice.
Why do you think a minority of CMC's have a bad reputation that has led to the requirement of new legislation to curb worst practices?
You are right in thinking it is a minority. There are many companies that pride themselves on their ethics and approach to good business that are angered by the reputation that has overshadowed us all through practices such as cold calling and unsolicited text messages.
Our regulator should come down like a ton of bricks on these companies and remove their licences.
The biggest concern I have is that the ‘fly by night’ companies that pollute our industry have no regard for the public. Despite not getting a response from one phone call they will continue to harass people. This is why so many people have a bad impression of the industry.
Do you think that your industry is regulated effectively?
I believe it is, but I would like to see swifter action taken against companies that use cold calling or mass text messaging to try and win business. This absolutely has to stop.
I receive texts on my phone like everyone else, and how they have my number I am unsure, but nobody can honestly tell me that they know whether or not I am entitled to claim based on my mobile phone number – it’s ludicrous.
I would urge anyone receiving calls or texts to get the name of the business and report them to the Ministry of Justice (MOJ). If we all did this, the MOJ would be forced to act.
What practices do you think are wrong?
Cold calling, unsolicited text messages and misleading letters are all wrong. But while those are annoying, charging clients up front before a claim is successful is borderline criminal.
Transparency is also crucial. Nobody should be paying any money before they start making a claim.
How does Moneyboomerang avoid them?
We only use television advertising. We believe consumers will make up their own minds whether to get in touch.
We never send text messages or use automated dialers to try and unearth claims. We simply do not, and never have, asked for any money up front.
We are transparent in our fee structure and have a number of processes we go through to make sure our clients understand this.
Why do you think such a product was allowed to be sold in the first place and should the regulators have done their job better?
Despite the scandal, PPI is a useful product. It can, and has been, invaluable to many people who need support making repayments on borrowing after an unfortunate occurrence would have otherwise precluded them from doing so.
The difficulty we face is that PPI in itself is not bad, but the way in which it was sold is.
Lessons can be learnt and I’m sure the regulator is already taking appropriate actions to ensure this does not happen again. For my part I would like to see more audits and stricter guidelines in place governing how PPI is sold.
Furthermore, a series of after-sale spot checks on customers to ensure they understood what had been sold to them, would help. This would also remind everyone that there are two people in a sale, and it only works if both of them know what’s going on.
Do you think there are any more mis-selling scandals in the closet?
I suspect that PPI is not the last mis-selling scandal there will ever be. Each generation has their examples of being mis-sold products, such as endowment policies in the nineties.
What is important is that, when identified, any mis-selling scandal is managed properly so consumers don’t become victims of those vultures who swoop in proclaiming help and support, but ultimately are as bad as those that caused the problem in the first place.
All responses from Craig Lowther, managing director, MoneyBoomerang