Mis-sold PPI? Delete those texts and claim yourself

The claims management industry has grown dramatically over the past five years, but that doesn’t mean we have to use one of these companies to claim compensation for mis-sold payment protection insurance.

Would you pay £700 for something that you could get for nothing? When that something is handling a claim for mis-sold insurance , enough people have done so to bring a £1bn industry into being.

Many of them will have been persuaded to pay a claims management company by the barrage of advertising on television, on radio and by spam text message that these businesses have unleashed.

If you allow them to claim for mis-sold payment protection insurance (PPI) on your behalf, they will typically pocket a quarter of the compensation you receive from your bank. About half of all PPI claims are made via claims companies and Britain’s lenders have set aside about £12bn to settle these claims, so claims management firms are likely to have made at least £1bn from their share of customers’ windfalls.

Unfortunately, this is money that consumers could have kept for themselves. The process of making a mis-selling claim against a bank, credit card company or other lender is a simple one. The same applies if you appeal to the ombudsman following a rejection of your initial complaint. In neither case is there a fee to pay.

The average compensation for mis-sold PPI is about £2,750, so anyone who uses a claims company can expect it to deduct £688, leaving them with just £2,062. However, some of these companies charge as much as 40pc, so you would be left with £1,650 after handing over a £1,100 fee.

What exactly would you get for this sum? Here we look at how claims management firms work, while the Action Points, right, explain how easy it is to do the job yourself and avoid wasting hundreds of pounds on the fee.

If your first contact with a claims firm is via an unsolicited text message, the chances are that it will say something like: “Urgent! You are owed compensation of £3,350 for the PPI you took out. Time is running out, visit our website to claim.”

Many people’s instinctive reaction will be: how do they know how much I would get? They must know about a policy that I’ve forgotten about.

The truth, of course, is that the figure was plucked from the air to grab your attention.

“This is what often swings it,” said Martyn James of the Financial Ombudsman Service (FOS). “They make it appear that they actually have access to this information.” It’s also not true that there is any time limit for claiming.

But if you do decide to go ahead for any reason, you will sign a contract that gives the company permission to pursue the claim on your behalf.

It will then ask you some questions about your PPI policies. Ironically, it will often use the FOS’s own questionnaire to gather this information. Then it will make the actual claim to the company or companies that sold you the PPI.

Should the bank reject the claim, or fail to decide within the eight weeks allowed, the claims firm will appeal on your behalf to the ombudsman, which will write back to confirm that it’s looking at the case. This time you will have to wait a year or more for a decision, because of the huge volume of complaints.

It is possible to appeal against the ombudsman’s initial ruling and claims firms will often do this on your behalf. “Some of them fight very hard when we reject complaints, but not all,” said Mr James. “Some do focus on the consumer’s case, although others just treat the whole thing as a bulk exercise in box-ticking.”

The ombudsman finds in the customer’s favour in 70pc of cases, irrespective of whether a claims firm is used or not. Consumer groups recommend that anyone mis-sold PPI makes the complaint themselves and avoids claims companies.

“These firms can sometimes help if you are busy or feel intimidated by the claims process,” said Mr James. “But you can get free help from the Citizens Advice Bureau (CAB).”

Despite this, the claims industry has grown dramatically from nothing five or so years ago. The Ministry of Justice has authorised almost 2,200 claims companies specialising in financial products over the period. However, supporting suspicions that many are fly-by-night operations, only about half of these firms are still authorised 300 have had their authorisation cancelled.

“It is illegal for these firms to operate without a licence,” said Kevin Rousell, the head of claims management regulation at the ministry. “We impose basic conduct requirements firms must treat customers fairly and mustn’t mislead.”

However, the regulator doesn’t ban specific practices such as upfront fees, although it can impose licence restrictions if firms pressurise potential customers into signing a contract or handing over money. This week the CAB called for a ban on upfront fees to be introduced.

“Some companies persuaded people to hand over credit card details by saying they were needed to 'prove identity’,” Mr Rousell added. “In these cases we can ban the company from imposing upfront fees or make them record all calls with customers.”

If the regulator does cancel a firm’s authorisation, the ban takes effect immediately, although the company can appeal. The ministry also takes steps to prevent individuals behind banned companies starting up again under a different name.