Is it worth using a PPI claims company? – 10 things you need to know
“You don’t need to pay to reclaim” – that’s the message we’ve been pushing this week, in a major joint campaign with Which? Yet many have asked if this means it’s never right to use a claims company. Like most things it’s never completely binary, so I wanted to jot down some thoughts.
Update Jan 2018: Free tool to reclaim PPI
As you’ll read below it’s rarely worth paying to reclaim PPI. And now to make it easier we’ve developed a free tool where you fill in your details and it drafts the reclaim for you. See the Reclaim PPI for free guide.
The mischief we’ve been trying to solve with the Don’t Pay To Reclaim advert and the PPI summit is that huge numbers are unnecessarily paying to reclaim.
With an estimated £9 billion being given out by the banks, and claims management companies doing around half of those claims, taking 30% of people’s cash each time, this is a £1billion+ industry. It’s so lucrative, these companies can afford to dominate the airwaves and the messaging, spending £2million a month on advertising.
The 10 things people need to know before using claims companies
This communication strength has led to an information misbalance. Below I’ve listed the main things I think people should know before using a claims company – but many simply aren’t aware of.
- You can do it yourself for free (see Reclaim PPI For Free for how).
- It’s much easier than it used to be since banks lost last year’s court case – many people now get paid out after just one letter or call.
- You have no greater chance of success with a claims company than without. In fact, guidelines state claims companies shouldn’t suggest this.
- Many claims firms use similar templates to the ones we offer for free in our guides.
- The prices firms charge are very high – often 25%, plus VAT, of what you get back. People should have this explained in practical terms before signing up. So if you’re due £5,000, then that’s £1,500 to the claims company.
- Beware using claims companies if you are in arrears. Often banks will use the money to clear or reduce the debts. If this happens, you won’t see the cash, but the claims company will still want its cut. So you’ll have to shell out, out of your own pocket. This is one the worst issues for me.
- A few claims companies charge an upfront fee as well as a win fee. Beware if you are going to do this – never pay upfront, stick with no win, no fee.
- Beware any company that will charge you on ‘future PPI savings’ – it could cost you large. To explain, imagine you’re two years into a 10-year £10,000 loan. The mis-sold PPI on it is £3,000, but you’ve only paid £600 of it so far.If your reclaim is successful, while the bank will give you £600 back, these type of claims companies unscrupulously want their 30% on the whole £3,000 – so they’ll demand £900. Yet you’ve received less than that, so overall it’s a loss.This is outrageous, as for future premiums you could’ve simply just cancelled the PPI.
- Once you sign up, you’ll need to pay if you do it yourself. This is a growing issue. People start a claim, become unhappy with the company and then find even if they choose to go it alone, it’s going to want the fee anyway.
- To make matters worse, getting redress if things go wrong is very tough. Barring going to court, against a company which is likely to have its own legal firepower, you’re likely to be stuck.
If you know all of that, and make a rational choice – using a claims company is fine
If you know all these facts and decide to use a company, then it’s a legit, rational consumer choice. This is most likely to happen in the following circumstances:
- You wouldn’t bother doing it without. If you’re busy and know it’ll never happen otherwise, and are happy to pay a hefty 30%+ to get your cash back, then it’s a perfectly legitimate choice to decide to pay to get your mis-sold PPI money back.
- You’ve a pre-2005, non-Ombudsman case. For some with older cases of mis-selling that isn’t from banks, the Financial Ombudsman can’t adjudicate. An example would be a car finance deal PPI. In that case, if they don’t play ball then you will need to go to court – in which case a claims company on a no-win no-fee basis is useful.The problem is many claims companies just like to cherry-pick the easy cases. So it may be difficult to find one who’ll take this on.
- Mental health or illiteracy. For those people who would find the process too difficult to do themselves, a claims company may be a helpful route – though it is frustrating that society’s most vulnerable may need to pay. It may be worth seeing if your local Citizens Advice Bureau can help first.
If they were better regulated, I’d be less against them
The real problem here isn’t that claims companies exist. It’s that many – not all – play fast and loose, and there’s no redress if they do things wrong.
The fact it costs £9-£10 per click to advertise on Google shows just how profitable this lark is. The charges are disproportionate – I’d guess you could run a profitable claims company at a 10% fee.
There are too few barriers to setting up a claims company under Ministry of Justice regulations. While it has some operational standards that should be followed, there’s a very small team there monitoring an industry that’s exploded. It’s simply not resourced to put controls in.
Worse still is the fact there’s no redress if things go wrong. What would be great is if the Legal Ombudsman were able to take on claims company complaints so there would be a free, independent, route for justice. That, combined with stronger rules of practice, would eliminate some of the issues described above.
With these measures, I think the problems with claims companies would lessen substantially and they would become a much more legitimate choice for many.
Of course there are some better claims companies right now. But finding them is a nightmare, and there is simply no authoritative way to cut the wheat from the chaff.