by Mark Johnston
Payment protection insurance (PPI) was supposed to repay customers loans if their income dropped because they fell ill, lost their job or in the event of death.
However, many people found it was impossible to invoke the insurance policy and others only received a small refund of premiums when they paid off their loans early.
So after years of campaigning by consumer groups and a string of court cases, banks have now started the lengthy process of paying out compensation for mis-selling the policies.
Banks have been forced to hand back £1.9 million already to customers who were wrongly sold these insurance policies and it is thought that the final bill for refunds could top £8 billion.
With such huge amounts involved, claims for payment protection insurance (PPI) have become a very lucrative business opportunity for an estimated 800 claims companies.
Martin Lewis, who runs the website moneysavingexpert.com, said “PPI has become a cash bonanza for unscrupulous claims companies”.
These companies are spending an estimated £2 million a month on advertising. These hard selling companies operate on a ‘no win no fee’ basis.
This therefore means that if you do not get anything, they do not get anything, although some do charge a small amount to retain their service, but this is fully refundable if they do not get any money. This all sounds great except the devils in the detail.
These companies typically charge around 30% after value added tax (VAT), meaning if the average individual payment protection compensation award is £2,750 the company collect around £825 from it.
A recent study found that many consumers had been bombarded with messages about reclaiming mis-sold payment protection insurance.
Many claims management companies have therefore decided that the best way to work is simply by harvesting as many customers as they can. As a result, many of these people have never had payment protection insurance policies, so there is nothing to claim.
Banks have criticized this method as they still have to process these claims and this therefore still costs both time and money.
Brian Cole, managing director of Capital One, stated “over 22% of these claims are on behalf of people who never had payment protection insurance”.
Lloyds banking group also stated that ‘1 in 4 of the payment protection insurance (PPI) claims made against it were fraudulent’.
However, some experts believe that the banks are unfairly shifting the blame in the payment protection insurance saga.
Andy Wigmore, policy director for the claims standard council, argues that “customers retain a mistrust of the banks and therefore prefer a claims management company to act on their behalf”.
Anthony Sultan, also from the claims standard council, which represents some claims management companies, said “we routinely find banks don not pay the full amount of compensation to the consumer and therefore only by doing some fairly complex calculations can you work out what the consumer is actually entitled to”.
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