£22.2 billion paid out so far in PPI mis-selling scandal

Claims management firms are estimated to have swallowed up nearly a quarter of the cash

Updated: 

Compensation totalling £22.2 billion has been paid out to more than 12 million customers over the payment protection insurance (PPI) scandal, a spending watchdog has found.

But claims management firms are estimated to have swallowed up nearly a quarter of the cash, according to the National Audit Office (NAO) .

It highlights concerns raised by regulators that Government pension reforms could be a trigger for the next major wave of financial mis-selling.

Despite the £834 million cost of running the Financial Conduct Authority, Financial Ombudsman Service and Financial Services Compensation Scheme, mis-selling remains a "major problem", the NAO said.

NAO head Amyas Morse said: "Mis-selling of financial products remains a major problem for Britain's consumers. The regulatory and redress bodies have increased the prominence of mis-selling issues in financial service firms and £22 billion has been paid out in PPI compensation since 2011."

Customers wrongly sold PPI can put in a submission for compensation directly for free but many used claims management companies instead.

The firms are estimated to have taken between £3.8 billion and £5 billion of the £22.2 billion of compensation paid out between April 2011 and November 2015, the NAO said.

Complaints to the Ombudsman about PPI are now taking three times as long to handle as they did in 2011/12 as it struggles to deal with an unprecedented increase in its workload.

The Ombudsman has a backlog of 40,000 cases that are still outstanding after two years which it does not expect to clear until July 2017.

Banks have a poor record of dealing with complaints and the level upheld by the ombudsman has remained consistent over the past five years, the NAO found.

Its report points to a warning by the FCA that Government pension reforms easing access for savers "raise risks" that "vulnerable and unsophisticated" consumers could take financial decisions that are not in their best interests.

While fines appear to have substantially reduced financial incentives for firms to mis-sell, the complexity of products, sales incentives and company cultures mean the risks remain.

The NAO also found the FCA "lacks good evidence" on whether its actions are reducing overall levels of mis-selling.

Mr Morse added: "Legislative restrictions limit my access to information that the FCA holds on firms, making it impossible to draw definitive conclusions on its approach. The information my staff could see, such as customer complaints, does not show any clear reduction in the extent of mis-selling.

"The FCA cannot be confident that its actions are reducing the overall level of mis-selling, and it has further to go to show it is achieving value for money."

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