PPI victims ripped off twice by claims firms
The banks paid out £1.9 billion last year to consumers who were mis-sold the insurance, putting the average successful claim at £2,000.
While it's free to contact your bank to apply for compensation, many people have used claims firms to do so. These companies then take a cut of around 25% of any compensation awarded.
One in four Britons said they didn't know CMCs charged a fee for the services provided, according to research from Which? and moneysavingexpert.com.
Almost all those questioned said they had been contacted by a CMC in the first instance - 55% had received text messages and 54% had been contacted by post.
PPI is taken out to cover repayments of loans should you fall ill or find yourself out of work but thousands of ineligible policies were mis-sold.
Today there will be a PPI Summit attended by all the major banks, credit card providers and regulators to try to speed up the process of getting claims paid and show customers how easy it is to reclaim PPI on their own.
"This new research shows that many people don't realise there are simple, easy to follow steps to reclaim their money for free and so they're turning to claims management companies, too often unaware they charge a fee," says Richard Lloyd, executive director for Which?
"It's encouraging that the banks are going to work with us to help put this situation right and help their consumers reclaim mis-sold PPI. It needs to be as easy as possible for people to get back their money. Many people have told us that free online claims forms, letter templates and helplines would help them to make a claim themselves, so we want to see action," he adds.
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.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
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.