Financial Ombudsman Service chief executive Natalie Ceeney has urged banks to improve their complaint-handling processes to stop the claim management industry booming in the wake of the payment protection insurance scandal.
Speaking at the British Bankers’ Association international banking conference in London last week, Ceeney said claim management companies have emerged because of banks’ failure to engage with complainants in the past.
She said: “Frankly, when the media highlighted there was an issue with mortgage endowments in 2005 and banks did not step in and solve the issues, a new industry was born that exploited that opportunity.
“Yes, we need stronger regulation of the sector but the best way to prevent claim management companies thriving is to take the detriment out by addressing it yourselves.”
The latest Ombudsman News says 76 per cent of PPI cases and 45 per cent of all cases brought to the ombudsman come from CMCs.
Ceeney said of the estimated £9bn to be paid out in compensation over PPI misselling, it is estimated that £2bn will go to CMCs in fees.
CMCs are regulated by the Ministry of Justice and Ceeney said the “massive under-regulation” of the industry needs to be addressed urgently.
She said: “We see simply appalling practice like claim firms submitting complaints for customers who never had a product and advertising which most people would agree breaches advertising standards.”
In May, the BBA lost its judicial review against the FSA and FOS’s PPI complaint measures and said it would not appeal after Lloyds and Barclays withdrew their support and set aside £3.2bn and £1bn respectively for compensation.
Royal Bank of Scotland also put aside £850m for the cost of compensation.
Ceeney said: “The idea we had to end up in a court room to decide what to do over consumer redress shows something was wrong.”