Banks pass buck to FOS over thousands of PPI claims

Banks are forcing victims of payment protection insurance (PPI) mis-selling to take their claim to the Financial Ombudsman Service (FOS), when they could resolve the disputes immediately.

The FOS says the vast majority of the more than 1,000 PPI complaints a week it deals with should never make it to the Ombudsman.

Instead they should be resolved by the banks, which represent 70% of PPI cases, following the initial consumer complaint.

About 90% of the cases passed up to the Ombudsman service are upheld.

But only 16% of people whose PPI complaint is rejected by a bank take their case to the Ombudsman, suggesting banks' failure to deal with PPI complaints is denying refunds to hundreds of thousands of customers.

Consumers who complain to the Ombudsman receive an average refund of £3,000 from their lender, although some borrowers with larger loans have received up to £25,000.

The number of PPI claims being passed to the FOS has soared in recent years.

In 2009/10, the FOS dealt with 49,196 PPI cases, up 58% on the previous year.

But FOS spokesperson Martyn James says with the Ombudsman already receiving hundreds more complaints a week, this year that figure is set to rise again.

James says: "We had expected 46,000 complaints this year. Now it looks like it will be higher.

He says some businesses have improved their complaints handling.

"But this has not yet resulted in a reduction in the number of cases being referred up, and some businesses still have lots of room for improvement."

"The majority of these complaints should be resolved without FOS. All the information is out there for businesses to use to resolve these disputes."

If the FOS forecast is correct, it will be the fourth consecutive year of increases in PPI complaints.

In its 2008/09 annual review, the FOS said the number of complaints received about PPI had tripled, following a five-fold increase in the previous year.

FOS says the vast majority of its workload involves complaints about the sale of PPI policies, not claims on the cover.

A high volume of these cases involve policies paid for with a single premium where the up-front cost was added to an unsecured or second-charge loan.

It says it also continue to see a "significant" number of cases relating to payment protection insurance sold alongside credit cards.

All businesses covered by the Ombudsman service pay a general levy to contribute to its costs, with regulated businesses handing over their contribution to the FSA the same time that it collects its own regulatory fees and the levy for the Financial Services Compensation Scheme (FSCS).