Claims management companies target PPI policyholders
Over the past two weeks, new figures have come to light that reveal the extent of PPI mis-selling. Which? revealed that two million PPI policies have been mis-sold to people who aren't eligible for this type of insurance. Meanwhile, the Competition Commission, which is currently investigating the PPI sector, says banks are overcharging borrowers taking out PPI by over £1.4 billion each year, with many people falsely believing they have to take out a policy in order to get credit.
As more people become aware that they could get redress on their PPI premiums if they were mis-sold a policy, claims management companies are jumping on the bandwagon and promoting their services to people.
Although these types of firms are forbidden from “cold calling” this only applies knocking on doors and other face-to-face meetings. The Ministry of Justice, which regulates the claims management sector, allows them to make unsolicited telephone calls to people with promises to help them get their premiums back in return for an upfront fee or on a no-win, no-fee basis.
However, there is no evidence that people have a better chance of getting a refund by using a claims management company. And, in addition, paying a third-party company to help you with your claim will actually leave you out of pocket.
“People who have been mis-sold PPI could get financial redress on their premiums plus any money they have missed out on through interest,” explains Teresa Fritz, a principle researcher at Which? “But this isn’t compensation and you will only get back what you have paid. So, if you are paying a firm up to 30% for its help then you will end up worse off.”
In addition, if the loan or credit on which you purchased PPI is still outstanding, then Fritz says it is likely that any redress you receive will be paid to you through a loan restructure. Although this will see you get your money back, it means any fee you owe a claims management company will have to be found through other means as you won’t have hard cash from your claim.
A spokesman for the Financial Ombudsman Service (FOS) says around 19% of mis-selling cases referred to it are from claims management firms.
He adds: “We tell consumers that we do not think they should need the help of a commercial third-party – such as a claims-management company or solicitor – to bring a complaint to us. We prefer to hear from consumers in their own words. If people employ someone to present their case for them, this could mean they end up paying them out of any compensation that is due.”
Claims management companies often purport to have a better success rate compared to people that make claims directly to the firm that sold them the PPI. They also often tempt people to use their services by suggesting that making a claim is complicated.
However, this is not stricly true. Fritz says: “You don’t have to be a financial expert to make a claim. There is plenty of free advice out there that you can use to see if you have a case or not, and there are also letter templates you can download.”
Putting up a fight
The complaints procedure for any financial mis-selling is free and anyone can make use of the services such as FOS.
Which? says it recently had a case of a couple who were sold a £22,000 PPI policy on top of a £56,000 secured loan. Despite the fact that the policy was mis-sold, it took the couple and Which? nearly a year before they were offered redress. And even then, the company involved has simply offered a settlement figure without giving any explanation of how it has reached it.
But Fritz says: “Yes some cases are tricky – but this is nothing new. And I doubt people would fare any better with a claims management company fighting the battle, especially as most of these firms only take on easy cases. Everyone has FOS on their sides.”
As the name suggests, secured loans require security, or “collateral”, usually in the form of property, a motor vehicle, or another valuable item, as a guarantee for the loan. This effectively reduces the level of risk to which a lender is exposed, as the lender has a claim against your home, or other effects, if you default. Secured loans are often available at competitive interest rates. Types of secured loans include mortgages, logbook loans and some types of hire purchase where the loan is secured on the goods you’re buying and these are repossessed if you default.
All sub-prime financial products are aimed at borrowers with patchy credit histories and the term typically refers to mortgage candidates, though any form of credit offered to people who have had problems with debt repayment is classed as sub-prime. Depending on the lender’s own criteria, sub-prime can apply to borrowers who have missed a few credit card or loan repayments to people who have major debt problems and county court judgments (CCJ) against their name. To reflect the extra risk in lending to people who have struggled in the past, rates on sub-prime deals are typically higher than for “prime” borrowers.
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.
Claims management companies
Regulated by the Claims Management Services Regulator since 2006, claims management companies offer advice and legal services in respect of claims for compensation, restitution, repayment for loss, damage or negligence. To many, the term is merely a polite euphemism for “no win, no fee” law companies. If you feel they offer services you need, approach with care.