Nick Baxter is independent chairman of the Professional Financial Claims Association
It is highly likely that any lay person reading almost any edition of a popular tabloid newspaper would conclude that we live in a compensation culture. Every day readers are bombarded with articles suggesting how much more car insurance costs are a result of voluminous and vexatious whiplash claims or that Claims Management Companies (‘CMCs’) are responsible for ‘manufacturing’ claims. However, a recent article on the BBC website debunks such myths. The article focuses on the “Billions that you [consumers] fail to claim”. As its evidence, the article list details of unclaimed lottery wins, unclaimed rail fare refunds relating to train delays (which resulted in a Which? ‘super-complaint’ to the regulator) and unclaimed benefits such as housing benefit and pension credits. However, it is the comments relating to unclaimed Payment Protection Insurance (PPI) compensation and mis-sold credit card and identity theft protection that is most concerning for the future of access to justice.
Consumers with mis-sold PPI products will lose out
At the same time that the BBC has highlighted the fact that consumers are not asking for the return of what rightfully should be repaid, regulators are considering ‘closing the door’ for future claims relating to PPI. There are two consultations by two different regulators that will put an end to simple routes to redress for consumers. The first is a consultation by the Financial Conduct Authority (FCA) which is considering a time bar on any claims. If approved as consulted, simple routes to redress will not be available after two years from a FCA decision date. The second is a consultation by the Claims Management Regulator (CMR) where a proposed PPI fee cap on CMCs would make it seemingly impossible for many businesses to continue. Both consultations are founded and worked through on flawed thinking that will result in significant consumer detriment; as evidenced by the BBC article.
What does the BBC prove?
Firstly, the FCA time bar consultation is based on the thinking that PPI compensation payments are near the end, that banks have returned £25bn of PPI premiums and that there is not much more to be paid out. The logic then suggests that a time bar advertising campaign will reach those who have not yet claimed and the saga can be brought quickly to an end. The PFCA has consistently pointed out the error in this thinking. We are nowhere near the end of this issue – as Freedom of Information (FOIs) requests prove. The BBC suggests nine million people in the UK could still make a claim and suggests that the total PPI bill could be nearer £100bn if all PPI premiums were refunded. Clearly, not all PPI was mis-sold, but the BBC probably do not know (and why should they) is that the £25bn of compensation includes statutory and account interest. Statutory and account interest usually accounts for 50% of redress so only around £12.5bn of PPI premiums have been refunded, not the £25bn claimed by the BBC and others (including the FCA). So we are nowhere near the end of the problem and it is far too early to consider a time bar, of any length.
CPP redress scheme is an example. Deadlines do not work for consumers!
Secondly, the BBC highlights issues with what it describes as “One of the most controversial compensation cases”, the redress system applied to mis-sold credit card and identity theft protection products by the insurer CPP. The FCA press release announcing the redress programme boldly stated, “Seven million customers, who between them bought and renewed about 23 million policies, will soon receive a letter from CPP giving more information on the process. The redress bill could be up to £1.3bn with redress per customer depending on the type of policy (or policies) owned and the length of time it was held.” The FCA press release at the end of the scheme highlighted what a communications failure the scheme had been, “By 5 March 2015, the scheme administrators paid £451m of compensation to 2.37 million claimants, an average of £190 per claim. This represents a response rate of 33.9% of all potential claims.” Additionally, the FCA confirm that “Only one claim submitted before the 30 August 2014 deadline was rejected, 11,045 compensation claims received after the 30 August 2014 deadline were rejected”. Deadlines clearly do not motivate consumers to ‘get on with their claim’.
Where next for consumers?
The BBC has proved that there is often a significant difference between the amount owed to consumers and the amount they claim. It may, also, have taken the independent investigative journalistic staying power of the BBC to work through these issues to finally expose the compensation culture myth, but it is what happens next that matters. So what if many consumers are apathetic, so what if making that claim takes consumers a bit of time to get round too. Consumers who have been mis-sold for whatever reason should not have future routes to access to justice snatched from them, however much it would suit product providers and regulators to move on. So it seems to make sense that any thoughts about a time bar are consigned to history and that any attempt to reduce consumer choice by ‘capping out of existence’ firms who support consumers are sent to ‘room 101’.