Citizens Advice Bureau (CAB) is calling for the Ministry of Justice to ban claims management companies (CMC’s) from charging upfront fees on payment protection insurance (PPI) as the call for consumers to apply for PPI compensation themselves gathers pace.
CAB has issued its call ahead of the publication of a new report on Wednesday which aims to expose what CAB calls the “predatory tactics” of the CMC’s who are in line to take more than £1 billion of money set aside for consumers for PPI compensation.
A new poll from CAB says that when potential claimants contact a CMC for the first time, two out of three don’t tell the applicant what they will charge for their services, 72 per cent don’t say when they will take a fee and 80 per cent don’t give information about cancellation rights.
Citizens Advice Chief Executive Gillian Guy said: "Claims management companies are preying on people who have already lost out thanks to the banks' mis-selling.
"These companies are a hindrance, not a help. We see people who end up worse off because, despite having a successful PPI claim, the compensation goes to pay off their debts and they are saddled with a large fee. Plus many people are paying up front fees yet never get a penny of a payout.
Research shows that the average PPI compensation payout is £2,750, which means a CMC will take just under £700 for handling your claim. The average charge from a CMC is 15 per cent plus VAT, but some firms charge up to 40 per cent, which on a payout of £2,750 equates to £1,100.
It is easy to make a claim yourself; websites such as MoneySavingExpert.com have excellent easy to follow instructions. At the moment roughly half of all PPI claims are made through CMCs. If your claim is unsuccessful the process for disputing it with the Financial Ombudsman Service (FOS) is also quite straightforward.
After last months’ bank results the total set aside by UK banks for PPI compensation has now gone over £12 billion. So, far less than half of this money has been reclaimed, but if it all is, and the banks would not have set aside the money if they did not believe it would be, then the total payout to CMC’s would be more than £1 billion.
Some of the claims that CMCs make to try and grab the attention of consumers are not always the whole truth. For instance, there is no time limit for making PPI compensation applications and the old chestnut of the money that you are likely to get back that CMC’s use in their adverts to tempt you to use their services are just random figures.
It is a major advantage to get your application agreed first time because if the application goes to the FOS, rather than the average time of eight weeks, the process takes up to a year because of the huge volume of PPI claims that have been rejected by the banks and referred to the FOS.
The FOS finds in favour of the consumer 70 per cent of the time and this makes no difference whether a claims firm is used or not.
Which? And MoneySavingExpert.com as well as CAB have worked hard to launch campaigns to increase awareness and educate consumers that making claims themselves is a relatively straightforward process.
Gillian Guy added: "You can make a claim for mis-sold PPI for free yourself. We have template letters and online advice about how to make a claim and advisers in your local CAB can also help."
Online advice about how to make a claim yourself for PPI can be found at adviceguide.org.uk