Building societies facing PPI 'bombardment'
- 9 July 2012
- From the section Business
Building societies say they are being "bombarded" with bogus claims for PPI compensation - and the situation is getting worse.
The Building Societies Association (BSA) said the eight largest mutuals received 22,441 unfounded claims in the six months to the end of April.
These were cases in which no payment protection insurance product was ever sold to that customer.
The BSA said claims management companies needed to be better policed.
It said that more than half of claims entered by claims management companies to the eight building societies were cases in which a PPI product was never sold in the first place.
PPI was sold along with loans and credit cards, wrongly in many cases, to cover repayments if people became ill or lost their jobs.
Banks are in the process of paying out £9bn in compensation to borrowers who were mis-sold PPI.
The huge payout has spawned an industry devoted to getting hold of a slice of the money.
That has meant millions of people have been encouraged by claims companies to put in complaints about PPI cover.
Claims companies text or phone people encouraging them to claim, whether or not they were mis-sold a policy or even had one. Then they charge consumers a fee of 25% of any payment, plus VAT.
In May, the Financial Ombudsman claimed that nearly 6,000 people put in bogus compensation claims to the service last year.
Although unjustified complaints made up less than 4% of the total PPI figure, the number concerned the ombudsman.
The BSA, which argues that mutuals were responsible for a tiny proportion of PPI mis-selling, said that these companies should have to pay a fee to the ombudsman if claims proved to be bogus.
"If anything, some claims management firms have stepped up their irresponsible, speculative scattergun approach to non-sale claims," said Adrian Coles, director general of the FSA.
"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.
"Looked at from the perspective of our highly-regulated sector, some claims management companies look remarkably like the modern day equivalent of highwaymen."
Banks have also complained about spurious claims. Earlier this year, Antonio Horta-Osorio, the chief executive of Lloyds Banking Group, said one in four claims his bank had received had come from people who had never had a PPI policy with the bank.
The Ministry of Justice has that bogus claims were taking up "valuable time, money and resources" and warned any claims companies putting in numerous incorrect claims that they would be investigated.
However, the trade body for claims management companies has always argued that people cannot remember whether they had PPI policies year ago, and so these companies provide a service.