Complaints made to the Financial Ombudsman about the sale of payment protection insurance (PPI) have soared to the highest number ever received in a year regarding a single financial product, according to a new report.
In 2011/12, the Financial Ombudsman Service (FOS) handled 1.27 million initial complaints from consumers, equating to around 5,000 per day. Of these calls, a record number of 264,375 escalated to formal disputes. 60% of these disputes were raised regarding missold PPI - with 157,716 new cases, these type of complaints marked a new record for the Ombudsman.
The Financial Ombudsman are an independent organisation established to help deal with disputes between consumers and financial companies which have not been satisfactorily resolved by the company themselves. It is the role of the Ombudsman to review each case impartially; if they decide that the company has acted fairly, they can order a new resolution and if they conclude that they have acted fairly, the reasons will be explained to the consumer.
The annual report highlighted that complaints about financial products are on the rise, with a 28% increase of new cases on the previous year. The majority of these were made up by disputes regarding payment protection insurance. 51% more PPI disputes were received than the previous year and an 113% rise from the year 2009/10. The organisation has taken on 500 extra staff to manage PPI complaints.
Payment protection insurance was often sold to consumers alongside other financial products such as loans or credit cards. The proposed theory of PPI is that it was in place to cover consumers’ repayments in the event of illness or unemployment. However this came under scrutiny upon realisation that many people would have been unable to claim or were sold the product unwillingly.
It has been estimated that the amount of compensation which banks will pay out to consumers who were missold PPI may each around £9bn. As the prominence of the issues rises, many claims companies are actively encouraging consumers to make claims and charging a percentage fee on any compensation received.
69% of the PPI disputes received by the Financial Ombudsman were from claims companies on behalf of consumers. The decrease on the previous year’s 72% suggests that consumers are realising that it is not neccessary to pay someone else to resolve the issue.
Natalie Ceeney, Chief Financial Ombudsman said:
“We are seeing consumers being very badly misled by claims management companies. Some of them, at their worst, are taking upfront fees and the consumer is losing out.”
“It is perfectly understandable for people to ask their bank - did I have PPI?”
Of all the PPI complaints received, the Ombudsman found that nearly 6,000 of these were ‘bogus’ claims. After further investigation into individual cases, they found that 5,667 cases were ‘frivalous and vexilous’ made about policies which had actually never been sold. The Ombudsman suggested that part of the reason for this was claims management companies’ ‘disappointingly lax approach’ to dealing with the dispute process on behalf of consumers.
Richard Lloyd, Executive Director of Which? said:
"With over £9 billion set aside for PPI redress, it's essential that barriers that prevent people getting redress are removed, and quickly."
The number of cases successfully resolved by the Financial Ombudsman also reached a record high of 222,333 with 64% resulting in a payout of compensation to the consumer, marking a 35% increase on the previous year and highest figure since 2000.