Lloyds Banking GroupBogus claims for payment protection insurance compensation are so rife that Lloyds has disclosed it needs 1,000 staff just to deal with them.

Under industry rules, banks and building societies have a duty to investigate every case as if it is genuine, even if they think they are likely to be fake.

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The industry has hit out at claims management firms for wasting time and money which could be better used to improve its customer services.

Lloyds said that half of the PPI claims it receives from claims management firms, which typically take a quarter of any payout, were "erroneous". It has 1,000 staff working on incorrect and fake claims alone, many on behalf of people who are not even its customers.

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Mutuals which say they only account for 4% of complaints to the ombudsman also say they are being unfairly targeted.

Hinckley & Rugby Building Society recently said that it had had 32 complaints about the mis-selling of mortgage PPI over three months - but just one was from a customer who actually had a policy. Its chief executive Chris White said: "The problem with these bogus complaints is that our duty is to investigate each one within the Financial Services Authority rules as though it was genuine. That is a burden on the Society in terms of time, cost and staff resource."

Hinckley & Rugby said it had not paid any PPI compensation but it was bound by the rules to comply with speculative requests.

The Ministry of Justice warned claims management firms last August that any business found to be submitting large numbers of claims where there was no PPI policy would be investigated and enforcement action would be taken. But the Building Societies Association (BSA) said bogus PPI claims made through such firms "soared" by 247% in the six months to April, compared with the previous half year.

It said that in more than half (57%) of cases involving claims management firms, no PPI policy had been sold, which was slowing down genuine complaints and increasing administrative costs. Building societies also say they are aware of increasing evidence that some rogue companies are using "pressure selling" tactics and have called for more to be done to stop this.

Adrian Coles, director-general of the BSA, said earlier this month: "If anything. some claims management firms have stepped up their irresponsible, speculative scattergun approach to non-sale claims... Looked at from the perspective of our highly-regulated sector, some claims management companies look remarkably like the modern day equivalent of highwaymen."

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