PPI: mistakes, disasters and opportunities

On the 29th August 2019, the deadline for making a PPI (Payment Protection Insurance) claim expired and as a result, several thousand highly trained staff suddenly found themselves with nothing to do. Many of them will be made redundant but an industry that has extracted over £50 billion in PPI settlement payments from the banks and has earned many hundreds of millions of pounds from doing so is not just going to give up and go away.

New target: Residential Lettings

These are entrepreneurial businesses and as sure as night follows day, they will be looking for new targets. We have already seen some of the claims firms starting to target other sectors. One is advertising on television at the moment to say that it can help people to reclaim overpaid mortgage interest. Another firm is targeting people who have signed up for packaged bank accounts on the grounds that they are paying for services that they will never use such as pet insurance. Victims of road traffic accidents are also being targeted, whilst other firms have started targeting the payday lenders.

There is a real risk of claims management companies targeting landlords and agents, pouncing on mistakes.

Unfortunately there is a real risk that some of the claims management firms are about to start targeting the lettings industry. There are a number of simple mistakes that letting agents can make such as failing to register a deposit correctly which can trigger an automatic penalty. This penalty is paid directly to the tenants. If a claims management company were to become involved in such cases, it could earn anything between 20 and 40% of the amount paid.

Solutions and opportunities

So, what can letting agents do to protect themselves from this very real threat? Well, there are no shortcuts. The only solution is to retain a specialist external compliance company to carry out a thorough audit of your existing files, your systems and your procedures in order to ensure that you stay within the letter of the law 100% of the time. This will not be cheap but it will cost far less than paying the penalties.

There is, however, also an opportunity. Approximately 750,000 landlords still do not use a letting agent, many are hopelessly ill-informed about all the recent compliance legislation. Claims management companies will almost certainly target landlords as well as agents – each time another DIY landlord pays a penalty, there is an opportunity to publicise the case, to persuade other DIY landlords that they would be better off using an agent. Perhaps even this black cloud may have a silver lining.

Parasites or heroes?

Some see claims management companies as parasites, others see them as heroes fighting for the rights of helpless consumers. The way banks used to sell payment protection insurance was certainly unprincipled. It was hidden deep in the small print of the loan agreements and was described in vague language that seemed almost deliberately designed to confuse people. Many highly sophisticated customers fell for it and the average consumer stood almost no chance of spotting it. Indeed many people were completely unaware that they had even signed up for a PPI policy until a claims management firm pointed it out to them years later.

The PPI products that were sold were also of questionable value and many were sold to people who could never have made a claim because they were self employed or had a pre-existing medical condition. Even customers who actually wanted the insurance often found it to be poor value for money because up to 30 or even 40% of the premium was paid out as commission to the sales person or introducer that sold it.

Could it really happen to your business?

When the PPI scandal broke the banks at first tried to deny what they had done and then, when that didn’t work they made the process of making a claim as difficult as possible. In the early days the claims management companies did provide a useful service for consumers but then some unscrupulous companies jumped on the bandwagon and by the end the banks were plagued by false claims from people who had often never been sold a policy at all. By this time though many of the banks were so overwhelmed with claims that many people got a payout anyway.

The letting industry is not like this at all. The potential fines for minor procedural mistakes are out of all proportion to the to the seriousness of the offence and it would be a travesty if letting agents were forced to pay out on such claims because they failed to prepare themselves properly.