Banks mis-sold payment protection insurance (PPI) for years. They've finally admitted they were in the wrong and set aside £7.4 billion to compensate consumers.
Now, claims management companies (CMCs), who will act on your behalf to get your money back, want a piece of that lucrative market -- they stand to make an estimated £2 billion in handling PPI claims alone.
But when Which? investigated CMCs, we found that not everyone was playing by the rules. Misleading advice, unfair contract terms and a lack of transparency about fees were all too common.
Where are they going wrong?
The principle of a CMC is fine. You might not want to submit a claim yourself, perhaps because you don't want to deal with all the paperwork, or you feel intimidated by your bank. A good CMC could take the hassle out of this process for you.
Here's the but - and it's a big one. They charge a hefty fee for their services, typically around 30 per cent after VAT. They're supposed to tell you there's a free service out there in the form of the Financial Ombudsman Service (FOS) to help you claim if your bank isn't playing ball but two thirds of the companies we spoke to didn't mention the FOS.
They're not allowed to suggest you have a higher chance of success, or getting more money back, if you use them instead of doing it yourself but 6 of the 25 CMCs we spoke to did just that.
Some of them charge money upfront, potentially locking you in before you can consider your options, and many others call you up or text you out of the blue offering to process a claim on your behalf.
It's often not even clear what you'll end up paying. You might assume that the fee would be calculated based on the lump sum of money paid to them, money you've paid out and are being refunded. Wrong. Some firms include a reduction in future loan repayments as part of their definition of compensation, meaning you could receive far less than you expect, and in some cases even end up owing the CMC money.
What can you do?
If you think you've been mis-sold PPI, claim it back for free. Both Which? and MoneySavingExpert.com offer free advice and online tools to help you submit a claim. Alternatively, contact your bank direct, they're obliged to deal with your complaint effectively. If they don't, complain to the Financial Ombudsman.
If you're in arrears with a loan linked to a PPI policy, never, ever use a CMC. The chances are that you will end up more in debt as any compensation awarded will be used to pay off some of your debts, so you could then owe the CMC money for its fee.
If you really do want to use a CMC, here are our top tips:
- Check if the CMC you are considering is authorised by the Ministry of Justice (MoJ).
- Have a thorough talk with the CMC before signing up to anything or sharing your bank details.
- Read the terms and conditions carefully, particularly the section relating to fees or compensation.
- Make sure you'll only pay the CMC at the end of the process, don't pay anything upfront, and never give your card details over the phone.
- When you do pay, use a credit card so you have extra protection.
If you feel you have been mis-treated by a CMC, follow its complaints procedure. If that doesn't work, or you're not satisfied with the outcome, complain to the MoJ.
What Which? wants
Which? wants the claims management industry to clean up its act. Done properly, CMCs could provide a useful service to consumers who, for whatever reason, don't want to submit a claim for themselves.
We want the MoJ to take swifter and tougher action against companies that break the rules - a clear message must be sent to the entire claims management industry that there will be serious consequences for misleading consumers.
But for now, the message to consumers is clear: avoid claims management companies, do your own claim for PPI compensation and save yourself a lot of money.