Our Litigation team summarise the PAC’s report outlining how Claims Management Companies have made up to £5 billion from Payment Protection Insurance Claims, out of compensation that should have been paid to victims of mis-selling.
Background and Overview
The National Audit Office estimates that claims management companies received between £3.8 billion and £5 billion in commission from PPI payments between April 2011 and November 2015.
The House of Commons Committee has stated that the commission earned by the Companies is a failure of the system of regulation. The FCA has not done enough to tackle the cultural problems that lie behind mis-selling by financial services firms. Collectively, the public bodies involved – the Treasury, the Ministry of Justice, the FCA and the Ombudsman – have been too slow in taking responsibility for this situation, and too passive in allowing it to happen.
The Ombudsman has a large backlog of PPI claims, with many consumers having to wait more than 2 years for a decision. In 2015 – 16 so far, half of PPI cases have taken 15 months or more to close.
The House of Commons Committee further advised that the FCA does not do enough to ensure that consumers understand financial products.
The House of Commons Committee concluded that the HM Treasury could not explain convincingly how it would know if the regulatory system is succeeding or failing, and has not developed any meaningful measures of what success looks like.
Recommendations by the House of Commons Committee
Following the findings by the House of Commons Committee, they made the following recommendations:
- HM Treasury and the Ministry of Justice should report publicly on the effectiveness of their actions in reducing the role of claims management companies in PPI compensation. The Treasury and the FCA should demonstrate how they will ensure that these problems do not happen again with future schemes.
- By the end of July 2016, the Ombudsman should set out publicly a clear timetable for reducing and ultimately eliminating its backlog of PPI claims, and also report publicly on its progress.
- The FCA should outline the actions it will take to improve cultures in financial services firms, and report on their effectiveness in a year’s time.
- The FCA should set out what more it will do ensure firms check consumer understanding of the products they purchase and of their rights to claim compensation, particularly for vulnerable consumers, and report back on this work in a years’ time.
- HM Treasury and the FCA should develop ‘real-time’ indicators of the extent of mis-selling, and assess regularly how effective their actions are in reducing it
- HM Treasury should outline a timetable for proposing legislation to give the NAO access to information so that it can carry out full examinations of value for money.
Chairperson of the House of Commons Committee Meg Hillier MP has recently said in a statement:
“It is vital the Government and regulators take fresh action now to better protect taxpayers’ interests, both in reducing the potential for mis-selling and, when it does occur, to ensure those affected get their due compensation.
We heard evidence of some diverse causes for products being mis-sold, ranging from incompetent or intimidating sales teams to badly designed and poorly targeted products.
It is deeply worrying that while the FCA has taken some action to deal with these causes, it has since scrapped plans for a review of banks’ culture—this despite it being best placed in the system to conduct such a review.
This sends a confused message to taxpayers and will do little to reassure potential customers.”
To find out more about the issues raised in this post, or to discuss any queries regarding mis-selling get in touch with our Banking, Finance and Litigation team on email@example.com or call +44 (0) 161 829 2599.
The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by berg or any of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.