Consumers could lose out on over £2bn in Payment Protection Insurance (PPI) redress by going to claims management companies (CMCs), warns Which?
A slice of the PPI pie
With an average payout of £2,750 for mis-sold PPI and CMCs taking as standard a 25% cut as their fee, consumers could pay £825 each for something they could easily do themselves. This could amount to over £2bn worth off PPI redress going to claims management companies.
Which? chief executive Peter Vicary-Smith, says: ‘Anyone who thinks they may have been mis-sold PPI should complain directly to whoever sold it to them. By going to a claims management company, you’ll pay what could be a lot of money for something you can easily do yourself.
‘If your bank rejects your complaint, always go to the Ombudsman – most complaints about PPI are upheld in favour of the consumer. This point can’t be stressed strongly enough as some banks have a record of rejecting legitimate complaints in the hope that consumers won’t take their complaint further.’
Take a look at our full guide to reclaiming mis-sold PPI.
PPI refunds to leave banks out of pocket
It is estimated that PPI redress could cost banks up to £9bn. The FSA estimates that the admin cost to the banks to contact customers and process claims will account for 12% of this, leaving £7.92bn in redress to be paid to consumers. With the standard fee for a claims management company coming to 25% plus VAT of any redress won, this would equate to a total of £2.376bn.
Claims management companies, which often operate on a ‘no win no fee’ basis, advertise themselves as being able to make the claim on your behalf, for which they take a fee. However, under regulations they are not allowed to advertise that consumers would have more chance of success with them than by going directly to the Ombudsman.
What’s more, people who claim back PPI sold with a loan could find themselves owing money to their CMC, even in the event of a successful claim. If the loan is still being repaid, redress often comes in the form of a reduction of the outstanding balance leaving the consumer to pay the CMC’s fee out of their own pocket.
Claim back PPI premiums yourself
To make things easier, Which? has developed a handy PPI tool to help you make your claim. All you need to do is select the company who sold you the PPI, fill in your contact details and answer some questions about how you’ve been mis-sold.
Claiming directly to your bank is the first course of action, and the high court ruling ordered the banks to contact any customers who have been affected. If you’re not happy with the outcome you can also complain to the Financial Ombudsman Service (FOS). Consumers have up to six months after their complaint is rejected to go to the Ombudsman, so any consumer who has had a complaint rejected by their bank since 18 November 2010 could still complain to FOS.
A Which? investigation into claims management companies found only 10 out of the 38 we contacted offered good advice, and 16 claimed success rates of 90% or above with little or no evidence. The Ministry of Justice, which regulates claims management companies, has shut down almost 500 such businesses since 2007.
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