Bogus PFI mis-selling claims soar
The Building Societies Association (BSA) is calling for claims management companies to be more strictly governed after mutual lenders were bombarded with bogus claims over the mis-selling of payment protection insurance (PPI).
The number of claims soared by 247 per cent in the six months to the end of April 2012, compared with the previous three months.
PPI was routinely sold by financial institutions alongside loans and credit cards over a number of years.
It is designed to meet repayments if the borrower is unable to pay because of a change in circumstances such as ill health or unemployment.
It was often sold without considering the policy eligibility conditions and some customers found they were unable to make a claim on the insurance because they did not meet the criteria.
In some cases consumers were unaware that they had been sold PPI.
Since the PPI mis-selling scandal came to light a whole claims management industry has developed, with claims management companies submitting claims on behalf of consumers in return for a fee, even though consumers can easily submit a claim themselves.
This has resulted in billions of pounds worth of claims being raised against the lending institutions.
Banks are already paying out £9bn in compensation for claims that have been upheld, but it is the huge number of bogus claims being submitted by claims management companies which is alarming the BSA.
The organisation has joined forces with consumer group Which? and Moneysavingexpert.com and is calling for the Ministry of Justice to be given the necessary powers to stop the flood of bogus claims.
Claims management companies should be forced to pay a fee to industry regulator the Financial Services Authority, if they submit a claim which proves to be bogus, the BSA says.
Adrian Coles, director general of the FSA, said: “If anything, some claims management firms have stepped up their irresponsible, speculative scattergun approach to non-sale claims.
“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.”