Rogue claims management firms have filed more than 22,000 bogus claims for payment protection insurance compensation (PPI) in just six months, the latest figures show.
This is 247% higher than the previous six months despite clear guidelines and two warnings from the Ministry of Justice about bogus claims.
And that’s just the fake claims received by building societies – who were responsible for a minority of the PPI sales over the past decade - and not including complaints made to banks.
“The Ministry of Justice warning in August 2011 was clearly ignored,” said Adrian Coles, director-general of the Building Societies Association.
“If anything some claims management firms have stepped up their irresponsible, speculative scattergun approach to non-sale claims. We have little confidence that their latest communication will have any effect either.”
The rules being ignored
Claims management companies are required to conduct basic checks before making a claim on behalf of an individual. For example, checking they actually had a PPI policy in the first place.
In many cases this is just not happening and in a large number of cases banks and building societies are receiving claims for compensation from people who not only didn’t have a PPI policy, but who have also never even been a customer of that lender.
“It is clear that the Ministry of Justice simply does not have the powers that it needs to effectively control the rogue elements in this industry,” Coles said.
“They do not even have the power to fine. Looked at from the perspective of our highly regulated sector some claims management companies look remarkably like the modern day equivalent of highwaymen.”
Pressure sales to vulnerable people
The principal aim of claims management firms is to get the money for, if not nothing, then very little indeed. Filling out a claims form yourself is a simple process with plenty of free resources available to help anyone who needs it.
But signing up to a management company means they get – typically – 25% of your pay out for doing this for you. Meaning customers are being ripped off for a second time.
And there is evidence that some firms are turning to pressure-selling door-to-door, going far beyond the incessant advertising, emails, phone calls and text messages that already exist.
One elderly lady described becoming distressed after two claims firm representatives came to her front door asking if she had any loans. Afterwards she wrote a letter to her building society explaining how she was pressured into providing details of her paid-off mortgage and giving them permission to request more information about her. All this despite her never having bought a PPI policy.
The men told her she could make money from a claim, but that after the experience she felt muddled up and unable to sleep. The building society contacted her to allay her fears, but she is now wary about opening the door to anyone, and is concerned that the claims firm has her address and other personal details.
Another elderly lady described being pressured into forging her deceased husband's signature to make a request on for them both by a claims management firm. The records held by the building society showed he had died two years previously.
Some firms are also now demanding an up-front fee from - even when there is no prospect of success. Others don’t say how much of the compensation they will take if they win or charge customers if they’re unsuccessful despite promising to work on a “no win no fee” basis.
Other common tactics include threatening the lender with going to the FSA (which costs £500 or more a time, whoever wins the case) if the claim is denied or flooding them with claims in the hope that a few will be paid out as building societies struggle to evaluate all the claims sent in before the deadline to respond.
Some 97% of the claims received by Hinckley and Rugby Building Society in the past three months were from people who had never been customers there, the building society said today.
“It all adds up to a most unwelcome and costly distraction as we and the rest of the building society sector strive to be efficient in order to give savers the best rates we can afford whilst lending money to people to buy homes,” said Hinckley & Rugby Building Society chief executive Chris White.
What can be done?
The FSA and Financial Ombudsman have the power to fine banks, but no one has the power to fine claims management firms and there is no dedicated body that customers can complain to about malpractice at them.
“Much stronger action is needed if these companies are to stop misleading consumers and putting a pointless and growing administrative burden on BSA members and the Financial Ombudsman Service,” said the Adrian Coles, director-general of the BSA.
The Building Societies Association is now pressing for the Ministry of Justice to be given the power to fine claims management firms.
On top of that, they want a body – either new or extending the power of an existing one – that allows customers to complain to if they think they have been mis-treated.
They are also calling for claims management firms to have some incentive to do their job properly – such as being fined if they submit a claim that turns out to be bogus.
Up-front fees, cold calling, full pricing transparency, service standards, professional case handling, and ‘fishing expeditions' must be addressed at the very least, according to the BSA.
Written contracts should also be introduced as a requirement, it added.