A Public Accounts Committee report released today has revealed that claims management companies charged victims of the PPI scandal £5bn out of compensation they ought to have received in total.
The Public Accounts Committee found that during 2014-15, 80% of complaints to the Ombudsman about PPI were made through claims management companies.
In many cases, these companies merely package up payment protection insurance claims, but they typically charge between a quarter and a third of any compensation subsequently paid.
The Committee highlighted that it was ‘straightforward' for PPI customers to make a mis-selling claim on their own without such claims management firms involved.
The National Audit Office estimates that claims management companies received between £3.8 billion and £5 billion in commission from PPI payments between April 2011 and November 2015.
Collectively, the public bodies involved-the Treasury, the Ministry of Justice, the FCA and the Ombudsman-have been too slow in taking responsibility for this situation, and too passive in allowing it to happen.
Action now is too late but is still important, particularly as claims management activity may increase further if the FCA introduces a deadline for making PPI claims.
The report recommended for the HM Treasury and the Ministry of Justice should report publicly on the effectiveness of their actions in reducing the role of claims management companies in PPI compensation.
The Treasury and the FCA should "demonstrate how they will ensure that these problems do not happen again with future schemes."
Meanwhile the report revealed that the Ombudsman has a "large backlog" of PPI claims, with many consumers having to wait more than 2 years for a decision.
There were around 400,000 new PPI claims to the Ombudsman in both 2012-13 and 2013-14, compared to around 120,000 in 2010-11.
The Ombudsman has reduced the number of open payment protection insurance cases from 445,000 in May 2013 to 234,000 in November 2015, but it has a large backlog of older cases-45% of open cases are more than 1 year old, and 17% (39,300) are more than 2 years old.
In 2015-16 so far, half of PPI cases have taken 15 months or more to close.
Although factors outside the Ombudsman's control may play a part, the Ombudsman did not give a convincing account of why many cases are taking so long to complete, the Committee said.
The Ombudsman has told the NAO that it aims to clear the backlog of older cases by July 2017, but it has not yet outlined a plan for doing so.
The Committee recommended by the end of July 2016, the Ombudsman should set out publicly a clear timetable for reducing and ultimately eliminating its backlog of PPI claims, and also report publicly on its progress.
Gillian Guy, Chief Executive of Citizens Advice, said: "Unscrupulous claims management companies have preyed on victims of the PPI scandal.
"It's bad enough banks let consumers down over PPI, but the fact some claims companies were able to swoop in and unfairly siphon off compensation adds insult to injury.
"Our evidence shows up to 39 per cent of customers did not know they could make a claim without these firms. It's crucial free, independent advice is available for anyone caught up in PPI so that they can seek compensation without the need to pay fees.
"We would also like to see the Claims Management Regulator continue to take enforcement action against firms that are shown to be operating outside the rules."
'A tremendous opportunity for advisers'
PFS and CII react
Over next 12 months
Dementia UK reaction