Marc Parish doesn’t remember how he heard of Hall and Hanley. But having taken out credit cards and loans for home improvements and car finance in the 1990s, he had sent his name and previous addresses to the compensation firm, based in Manchester, to check if he had ever paid for insurance he didn’t want or need.
Parish, 47, has always had good sick pay from his job as a mechanical engineer in Doncaster, so he was certain he had never chosen to take out this kind of cover – called payment protection insurance (PPI) – on a loan. But if PPI had been sold in his name, the claims management company could potentially get him thousands of pounds in compensation.
At first, Hall and Hanley was accommodating. It had a reason to be: if it helped Parish reclaim money, it was entitled to a 29 per cent cut of everything repaid. When Parish called up, he was able to speak to someone about his claim. But the initial communication became patchy. He would try to check his claims’ progress and says no one was able to answer his questions. When he asked to speak to a manager, he was promised a return call that never materialised.
It was only when Parish learned he was owed compensation – £4,500 from Lloyds Bank and then multiple other smaller payments, to a total of £12,000 – that the tone changed. “When you are chasing them up they make false promises,” he claims. “But when you owe them money they are all over you with phone calls and letters.”
Parish says he was hounded from the minute the banks confirmed he was entitled to compensation. Years later, he wishes he had made the PPI claims himself. “I still might have the odd case where the claim has gone to court, but I don’t think I’d ring Hall and Hanley now.”
In 2018, around the time Parish noticed a decline in customer service, people started to report Hall and Hanley to the Information Commissioner’s Office, the UK’s data protection regulator deals, for nuisance calls. In May 2019, it emerged Hall and Hanley had sent 3.5 million direct marketing text messages about PPI over the first six months of 2018 without having valid consent to use people’s data.
The ICO said it received 1,353 complaints after thousands of spam messages were sent to people who claimed they had not given Hall and Hanley their number. The ICO hit the company with a £120,000 fine for its behaviour. Hall and Hanley has lodged an appeal against the decision. Hall and Hanley declined to comment on this story.
Before the turn of the millennium, only a handful of claims management companies existed, mostly for personal injury issues. But by June 2018, there were 1,500 of the firms in the UK, making 2.7 billion unsolicited calls, text and emails a year – the equivalent of 50 per adult per day.
At 11:59pm on August 29, the banks will stop accepting new claims for mis-sold PPI, hoping desperately to draw a line under a scandal that has cost them more than £45bn in compensation. But the culture that drove banks to sell useless products is still rife, according to Treasury documents, and the regulator that is supposed to police the banks has dropped an inquiry into the culture that allowed corruption to flourish.
The claims management companies – from the financial investigators, to the nuisance callers, to the software geeks building automated marketing machines in their bedrooms – have become part of a compensation industry capitalising on the misdeeds of the financial institutions we are supposed to trust. And they are only just getting started.
Mike Begg began to notice the reckless selling of credit insurance in the 1990s, when he was working for Clydesdale Bank in Scotland. Begg believes this was the start of a “sales culture” in banking. Credit cards, first introduced by Barclays in 1966, were marketed aggressively and quickly adapted by consumers. Monthly credit card spending in the UK increased from £2.9bn in 1993 to £12.4bn by December 2003.
“Banking should be about financial prudence, but from 1990 that went out the window and it started to be run by sales people,” he says. “You can’t go from selling five credit cards a week to 50 credit cards a week and think there will be the same level of oversight.”
Credit cards generated huge amounts of income for the banks when the UK interest rate was around 15 per cent in 1989. But when it dwindled to 5 per cent in 1999, salespeople started looking for another, complementary, source of revenue. So-called PPI policies, designed to protect credit card and loan holders from missing repayments if they became ill or lost their job, grew rapidly to fill the void.
In 2014, the Financial Conduct Authority estimated that in the 20 years from 1990 to 2010, 45m PPI policies were sold, generating £44bn in premiums. The FCA has also said the amount of PPI policies may have been as high as 60m. The PPI policies were big business for the banks: in 2006 alone, the 12 biggest lenders made a profit of £1.4bn on PPI policies – a return on investment of 490 per cent.
Insurance policies quickly became an essential source of revenue for banks, according to testimony given by bank executives. At Halifax Bank of Scotland (HBOS) alone, PPI was responsible for 12 per cent of group wide profits by the time Paul Moore, the former head of group regulatory risk, joined the bank in 2003, he recalled in a parliamentary deposition. Moore remembered Andy Horby, who became chief executive of HBOS in 2006, saying that sales of PPI “kept him awake at night”.
The bankers, tossing and turning, knew something consumers and regulators didn’t: much of this insurance was useless. A Citizen’s Advice report from 2005 found that the insurance premiums being sold by banks represented anything from 13 per cent to a staggering 56 per cent of the loan – even though many did not even guarantee to pay off the original debt.
Some insurers only covered payments for a year, and some only the minimum payment. The policies didn’t cover credit payments for people suffering from bad backs, or mental health problems, for example, or for those who were self employed. People were aggressively sold PPI policies when they took out the loan, giving them no opportunity to shop around for a better deal. In the worst cases, the insurance was simply added to their monthly repayments without them knowing.
“We would never be in this situation if the banks didn’t scam people themselves,” says Guy Anker, editor of consumer rights website Money Saving Expert. “There are two scandals: the mis-selling at the banks, and the scammers at the claims management companies.”
Slowly, the regulators began to catch up. From 2007, the Financial Services Authority (which became the Financial Conduct Authority in 2013) started issuing fines to lenders for mis-selling payment protection insurance. In 2009, it issued strict guidance on the selling of such products, including a ban on selling insurance at the same time as selling a credit card or a loan, to give people time to shop around for the best deal.
This time the banks fought back, arguing in the High Court that the guidance amounted to imposing standards on the industry retrospectively. When, in April 2011, the High Court ruled against the banks, the floodgates opened for compensation.
After the High Court decision in April 2011, claims companies saw an enormous opportunity: the Financial Services Authority said the banks owed £4.5bn to consumers and the claims management companies set about pursuing a large slice of this figure. But this was just the tip of the iceberg.
By August that year, Lloyds Bank, which had merged with HBOS two years earlier, announced a loss of £3.3bn for the first six months of the year, in part because of the PPI scandal. It set aside £3.2bn to cover compensation claims. Within months, the amount of compensation appeared to be much greater than the estimated £4.5bn. The banks appealed for customers to contact them directly about claims. But claims management companies could smell the cash and began marketing aggressively. From 2011 to 2013, the number of complaints to Ofcom, the broadcasting regulator, about nuisance calls more than tripled.
Consumer bodies have always stressed that customers who had been mis-sold PPI do not need to claim through a third party. They say the process is easy: first you obtain the account numbers for the customer’s credit cards and loans, and then you write a letter of complaint to the lender, asking for compensation.
But claims management companies were one step ahead. They had low overheads, most employing a handful of people, and used software to contact people in high volumes, levying commission of anything up to 40 per cent on successful claims. This was an agile, new industry, invented when the Access to Justice Act of 1999 abolished legal aid for personal injury claims. These claims were forced into no win no fee arrangements, laying the foundations for a so-called “compensation culture”, or a gap in the market, ripe for a third-party.
Between 2007 and 2017 almost 7,000 claims management companies were granted a license from the Claims Management Regulator at the Ministry of Justice. Firms were given friendly names – The Claims Guys, The Fair Trade Practice, EasyLeads. These companies quickly dominated the market. Between 2014 and 2015, they made up 80 per cent of complaints to the Financial Ombudsman about payment protection insurance.
Claims management companies employed a number of tactics to get hold of people’s personal details. Some bought large quantities of data mined from clickbait sites advertising deals and competitions, such as getyaoffers.co.uk and prizereactor.co.uk. Many of these sites required customers to supply their personal details and “opt-in” to be contacted by third-party marketing firms in order to play.
The claims companies then paid third parties to contact these people via text message or phone calls using computer software. One of the claims management firms WIRED spoke to paid marketing firms £10,000 a week to obtain customer data at £3 per customer, resulting in hundreds of positive responses from customers every day.
For consumers, the volume of harassment. It was only when penalties from regulatory bodies caught up with the worst offenders that the extent of chaos emerged. In a single case, Louis Kidd, who was 27 by the time the regulator caught up with him in 2017, made 46m nuisance phone calls in just four months, or over 330,000 per day, reportedly from a bedroom at his parent’s house in Brighton.
People reported feeling “anxious” and “trapped” after getting two or three calls a day from a company called Miss-Sold Products UK, including a carer who always answered in case it was something to do with a client. In January 2018, the Information Commissioner’s Office, which deals with data protection in the UK, said it had fined Miss-Sold Products UK £350,000 for making 75m nuisance calls, mostly about payments insurance, between November 2015 and March 2016. Prodial, the company set up by Kidd, was fined £350,000 in 2017.
At its peak, Hall and Hanley was getting 1,000 positive reponses a day to spam messages. These were dealt with a team of 16, at most. The company says it has claimed back over £15m in compensation compensation from the banks, taking a 29 per cent cut in most cases. If all that cash materialised – the company is small enough to be exempt from reporting turnover in its accounts – it has made more than £4m in commission, more than 30 times the ICO fine.
Many claims companies say spammers are in the minority and that most firms are in it to help consumers. Handling the admin of PPI claims for customers is completely legal and many claims management companies aim to reduce the burden on people who may not have made claims otherwise.
Mike Begg decided to leave Clydesdale Bank to start his own company to handle credit insurance claims after the High Court ruling in 2011, convinced that he could do a better job that the third parties he worked with. “We’ve never cold called anyone in our life,” Begg says.
Begg’s company, Beat the Banks, finds its customers through social media advertising and word of mouth. It works by completing subject access requests to banks, a way of asking for personal data that was made free under GDPR, in order to find out everything that’s held about a customer. “It’s a completely different way of doing it,” Begg says. “I find it a bit annoying that people who know how to run a call centre have made millions without knowing how to do claims properly.”
Simon Evans is the director of the Alliance of Compensation Companies, whose membership was responsible, he said, for over 50 per cent of the PPI claims in the system in the 18 months before the deadline. Evans believes bad practice on the part of some firms has allowed banks to pass the buck for their misdeeds.
“It’s been a very effective rhetoric campaign by the lenders,” he said. “The pressure tactics used by lenders include lying to consumers, pressure selling, even forging signatures and box-ticking consent forms post-sale. Yet those companies that have emerged to help customers have become the bad guys because they charge a fee to do so.”
Evans says there are an increasing number of cases where the banks told customers that they weren’t eligible for a refund, only for a claims management company to look into the case and recover some compensation. Barclays, which has set aside a total of £9.6bn for compensation, admitted in 2018 that it had given inaccurate information to tens of thousands of customers who complained over PPI. (The company said it would proactively contact customers who it had given wrong information to).
Consumer groups such as Money Saving Expert and Which? are adamant that in the vast majority of cases, customers do not need to use these firms. “The simple message is: do it for free,” Guy Anker from Money Saving Expert says. Both Money Saving Expert and Which? have produced simple guides for customers to check whether they could make a PPI claim and the process for doing so.
Yet many of the people WIRED spoke to said they simply wouldn’t have made a claim by themselves. Helen Parker, 41 from Ealing, London, has started her own company and written to her MP. She does not think of herself as a lazy person. But, in 2018, she was a single mother trying to start a hypnotherapy business two years after taking redundancy from her job in telecoms. A few years earlier she had shredded loads of financial documents and though she suspected she had paid for insurance on an Egg credit card, she didn’t have her statements or her account number any more.
So she got in touch with The Fair Trade Practice, who took her name and previous addresses, and found all her previous information. “It’s probably really easy, but if you’re not going to do it then at least they do it and they do it quickly,” she said. Parker was owed just under £2,000 by the banks, of which the Fair Trade Practice took a cut of 24 per cent including VAT. “I was fine with [it],” Parker said. “At the end of the day a cut of nothing is nothing.”
As the August 29 PPI deadline approached, the number of claims reaching the banks has gone “nuclear”, in the words of one banking executive. People have been keen to get a share of any money they may be owed and the Financial Conduct Authority has embarked on a high-profile advertising campaign – involving the face of Arnold Schwarzenegger – to promote the claims deadline.
As interest has swelled, so have complaints about claims management companies. According to the Financial Ombudsman, which hears complaints about financial products, three quarters of complaints in the last financial year have been about claims companies.
Yet many of these claims may never see the light of day. “Lenders have become obstructive to the point where we can’t do any more claims,” Begg says. He found that by July, it had become impossible to make claims through the banks. “You just can’t get information out of [some of them], they just keep returning the request, and you can’t phone them, you have to correspond by post.”
Begg says he has repeatedly complained to the FCA about banks obstructing claims, but that nothing has ever been done. The FCA says it was continuing to challenge firms to reduce barriers in their PPI-checking processes and that individuals who are unhappy with their response should complain to the Financial Ombudsman.
Begg has been redirecting customers who come to him to go straight to the regulator. Many other claims firms have not been so prudent. “There’s a cosy arrangement between lenders and [some] claims management companies to provide information in the cheapest and poorest format to benefit both parties,” Begg said. Other claims companies WIRED spoke to refute this.
Many have been laying off staff and switching their marketing tactics away from spam texts and calls to comply with regulations. As social media and word-of-mouth marketing has become more popular, the FCA has released a warning to claims companies to make sure all marketing makes it clear the nature of the business and the size of the fee. One PPI claims company had a complaint about it upheld by the advertising regulator for not clearly showing how much of a fee it would take on its Twitter and Facebook adverts.
Some of the worst practices are being addressed. In 2018, regulators imposed a cap on commission at 20 per cent plus VAT. Since December, the ICO has powers to make company directors and other officers personally liable for the fines imposed for legal marketing such as nuisance calls, so that company owners can not evade responsibility by putting their business into liquidation. In September 2018, cold calls offering to help claim compensation for mis-sold PPI were banned if the claimant had not chosen to opt-in to receive them – rather than merely opting out.
Meanwhile the banking culture that created the scandal persists. Middle managers at financial services firms, promoted on the basis of achieving sales targets, have been struggling to switch to more consumer-focussed approaches, a Public Accounts Committee said in 2016.
Instead of doubling down, the Financial Conduct Authority has withdrawn a review of banking culture and failed to articulate what culture it expects lenders to have. In addition, the Treasury said it had no idea how effective the FCA was in reducing mis-selling, because the FCA has not developed any “meaningful measures of what success looks like”. The spectre of the next scandal is already lurking, it said, in the potential for mis-selling under new pensions freedoms reforms. “It’s not over for the banks,” Money Saving Expert’s Anker said.
A director of a claims management company, who did not want to be named, asked why there had been no criminal prosecutions over mis-selling of PPI. “If the bank customers had perpetrated these crimes, they would have been prosecuted, so why aren’t the banks being prosecuted,” they said.
Now claims companies are turning to litigation, sending complaints over mis-sold products to the legal professionals that would have handled them before the claims industry emerged. Some are buying solicitors’ firms in order to become registered with the Solicitors Regulation Authority. By the beginning of August 2019, banks still had £10bn set aside for future claims, money that may end up being fought over in the courts.
“Litigation is something we know a lot about,” Begg says. “The deadline is to protect the banks but be under no illusion that if anyone identifies they have been mis-sold insurance, there will be a legal route at some point.”
At the same time, some claims companies are turning their attention elsewhere. Firms are eyeing compensation from car financing deals called Personal Contract Purchases, a finance agreement with monthly instalments and a final payment linked to the residual value of the vehicle. In March, the FCA found customers were paying more than £1,000 extra in interest charges because of commission on these products. The claims industry waits in the wings for its next scandal.
Only consumers, hammered with information about the deadline, hope in vain that after August 29 the spam calls and texts will stop. Marc Parish still gets letters from Hall and Hanley, plus messages from five or six different compensation companies a week. While he is speaking to WIRED, another text message comes through from a company called Allay begging him not to ignore the message and to return his information pack. It is a week before the cut-off, and there is barely time for any company, no matter how swift, to make a legitimate claim. “I’m glad there is a deadline,” Parish says. “I’m absolutely sick of hearing about it.”
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