Ministry of Justice announces 897 companies have been granted licences to offer deals on mis-sold insurance
The lawyers, accountants and businessmen behind the mushrooming PPI claims industry stand to take at least £1bn, and possibly £2bn, of the £8bn in compensation expected to be paid out by banks and credit card companies to individuals mis-sold insurance.
The Ministry of Justice said that a total of 897 firms have now been granted licences to offer PPI compensation services, and some of the leading companies in the sector are already enjoying huge fees. Last year Gladstone Brookes obtained £108m in PPI compensation from the banks on behalf of its customers. It charges 25% ( plus VAT) of anything received by clients, which suggests it is likely to have taken at least £25m as its share.
Many of the lawyers behind the new PPI claims management companies are veterans of previous compensation sagas, from which they have pocketed millions of pounds. One of the directors of Warrington-based Gladstone Brookes is 35-year-old Anthony Chorlton. In 2006 he was named by The Lawyer magazine as one of two equity partners in Avalon Solicitors, also based in Warrington, which in 2005-06 brought in £21.2m in fees and made a net profit of £15.5m – a margin of 73%. It is understood that Chorlton’s partner, Andrew Nulty, took around £13m, while Chorlton himself earned around £2.5m, dwarfing most lawyers in the UK’s top 100 firms that year.
Avalon’s earnings came from controversial fees charged to sick miners seeking compensation from the government for a range of heart and respiratory diseases. In 2009, Andrew Nulty was struck off by the solicitors disciplinary tribunal after it found that he had taken fees he was not entitled to. He is now believed to be living in Spain. Chorlton was not subject to disciplinary action. Chorlton could not be reached for comment.
Gladstone Brookes’ report and accounts for the period up to July 31, 2011, before the surge in PPI claims that followed a High Court ruling in April, shows that turnover jumped from £9.9m to £11.4m, although profits fell as it invested in new premises. It said the decision by the British Bankers’ Association not to appeal the High Court ruling “was welcome news for the company and the volume of claims being processed following the decision experienced a significant increase.”
Other PPI claims companies are enjoying huge increases in business. Mitchell Farrar Group, the company behind PPIClaimBack.co.uk, which also operates BankingRefunds.co.uk and ReclaimCreditCardCharges.com, saw its turnover surge from £2.2m to £9m between 2010 and 2011. The company also operates a large debt management service, so PPI claims make up only a part of its revenue.
Brunel Franklin said it has been behind 100,000 claims made so far, with an average payout of around £2,000. Its fees are also 25%, suggesting its share of the compensation claimed so far to be around £50m. Its managing director, Sally Bowyer, said: “Brunel Franklin fully supports attempts to clean up the claims industry and outlaw rogue practices and operators. Brunel Franklin was at the forefront of the pro-regulation lobby several years ago and remains committed to a totally professional approach in all its business activities. We work extremely diligently to filter out invalid claims, and almost all the cases we present to the banks are valid claims with PPI attached. We believe our fees are reasonable for the service we provide, and these are offset by the massive investment we have made.”
The MoJ said that since it set up a compliance team to investigate complaints against claims management companies, it had conducted 50 audits, and issued seven warnings already. AMoJ spokesperson said: “We have made it very clear to businesses that we take a zero tolerance approach to any malpractice or attempts to take advantage of consumers, which is why we have a dedicated unit investigating claims management companies who mis-handle PPI claims. This work is ongoing. We investigate all complaints made against businesses and where a breach of the rules is identified, enforcement action is taken that can result in the business being closed down.”
The MoJ also warned of a surge in scam calls from people falsely claiming to be from the ministry itself, tricking members of the public into paying an upfront free to enable them to receive money they are owed from PPI misselling.
“Fraudsters have already tricked and harassed some victims into handing over thousands of pounds, only for them to find that the call was a fake. The MoJ would never contact consumers asking them for personal bank details, or request an up front payment by money transfer.”