* Banks demonised claims firms in compensation battle
* Now they are seeking to cooperate
* Bill could reach 25 billion pounds ($40 billion
By Matt Scuffham
MANCHESTER, England, Jan 13 The boss of
Britain's biggest retail bank struck a chord with the public
when he complained of getting unsolicited calls from claims
management firms promising him compensation from his own and
But while people share his irritation with calls and text
messages about fantastic sums from claims they have not made,
more and more are turning to claims management firms to help
return billions tricked or bullied from them by the banks.
Facing a huge backlog of claims from the biggest mis-selling
scandal in British banking history, the country's lenders are
beginning to turn to claims firms for help themselves, instead
of treating them as enemies.
It is a far cry from last year, when Lloyds' Chief
Executive Antonio Horta-Osorio summed up the mood of many
bankers by accusing the firms of fueling bogus claims, pointing
to the irony of their calls to his own phone.
Horta-Osorio said one in four cases from firms claiming
compensation for unwanted or unsuitable payment protection
insurance (PPI) -- meant to protect borrowers who lost jobs or
became ill -- did not even have a PPI with Lloyds.
"We have to stop this," he said. "It's fraud."
The tables were turned by figures from the country's
Financial Ombudsman Service showing that Lloyds lost 98 percent
of cases referred to the service in the year to March 2012, the
worst record of any bank, compared with just 18 percent at
Britain's biggest building society, Nationwide.
Now claims firms report a more cooperative atmosphere as the
banks, which face a bill likely to far exceed the 12 billion
pounds ($19 billion) they have already set aside, seek to save
costs and restore their battered reputations.
Craig Lowther, founder of claims company Money Boomerang,
said it had been approached by several banks looking to speed up
the process of dealing with claims and avoid the extra cost of
referrals to the Financial Ombudsman Service.
"We're starting to see some lenders approaching us with the
idea of working in a smarter way," Lowther, 41, said in an
interview at Money Boomerang's offices in Manchester, England.
PPI is by far the most costly of a string of scandals to
have hit Britain's banks, including interest rate rigging,
breaches of anti-money laundering requirements and the mis-sale
of complex interest rate hedging products to small firms.
One senior bank executive told Reuters he expected a total
bill for the industry of 25 billion pounds for mis-sold PPI,
while the Bank of England has said up to 10 billion pounds more
may need to be set aside on top of current provisions.
The claims industry has grown around this honeypot,
attracting criticism not just for the aggressive marketing, but
for taking big slices of compensation from people who could keep
it all if they complained directly to their banks.
Under the new arrangements, Lowther said his company
fast-tracks its strongest cases to lenders and flags up
unresolved cases it is about to refer to the Ombudsman in a
"search-and-destroy" process that also sees it dumping
This helps banks cut back processing costs and avoid the 900
pounds ($1,400) they are charged when cases are referred. With
each billion pounds paid out in PPI cutting the amount banks can
lend in real terms by 10 billion pounds, speeding up payments
also helps end investor uncertainty over the impact of the bill.
Lowther said one bank, which he declined to name, had
entered similar arrangements with around a dozen claims firms.
Several major banks contacted by Reuters all stressed they
dealt with all claims equally and at the same pace.
Declining to be quoted by name, one said it was prepared to
work with reputable claims firms to process legitimate claims
quickly but was wary of unscrupulous operators. Another said it
had "stepped up its engagement" with claims firms in the past 12
months because of a "very significant" increase in complaints.
PPI is the most complained about product ever in Britain,
with the Ombudsman receiving its 500,000th case last October.
The second highest is mortgage "endowment" insurance policies,
about which 350,000 complaints have reached the Ombudsman.
Lloyds opened the floodgates to a wave of claims when it set
aside 3.2 billion pounds for PPI compensation payouts in May
2011, after Britain's banks had lost a landmark court case.
Lloyds, which has an army of 6,000 processing claims, has
increased the amount to 5.3 billion, the highest in the
industry, and analysts expect there is more to come.
It says it deals with all complaints at the same speed,
acknowledging it had problems distributing compensation payments
to customers at the end of 2011.
"We are confident that more current data will highlight the
significant investment we have made in our PPI complaints
handling processes," a Lloyds spokesman said.
The Justice Ministry, which regulates more than 3,000 claims
management firms in the UK, says the industry does not always
live up to the image it projects of consumer champion.
"Too often consumers are treated simply as a commodity and
their claims for mis-sold products and the like are presented to
lenders in a commoditised format," the Justice Ministry's Claims
Management Regulation Unit said in its annual report.
It said firms handling PPI claims increased their turnover
by 66 percent to 313 million pounds in the year to Mar. 31,
2012, a number thought to have grown significantly since.
On Thursday, the ombudsman said it was taking on 1,000 new
staff to deal with an unprecedented level of complaints; last
year it said they had reached up to 400 an hour.
Money Boomerang, which takes a hefty 25 percent slice of
compensation payments, rejected accusations that firms like his
are to blame for the spiraling cost of compensation.
"To say that it's all the fault of big bad claims management
companies is a misnomer," said Lowther who previously provided
legal services to ex-miners who had contracted illnesses.
"They (the banks) created the mess and they haven't done a
good job of clearing up the mess."
The ombudsman has said that less than 4 percent of the
claims it dealt with were thrown out because the customer did
not have a PPI agreement with the lender.
It ruled in favour of the consumer in more than four out of
five of the remaining cases and said there was no difference in
the uphold rate between claims brought by individuals and those
brought by claims firms. Most claims are paid by banks, or
dropped, before they reach the ombudsman.
Speaking in the hub of Money Boomerang's operations, where
65 staff sift through a backlog of 30,000 live cases, Lowther
said his firm searches through 15 years of a clients' financial
history, uncovering an average of 2.1 cases for each claimant.
"If we advertise on TV it's expensive, we don't cold call,
we don't text, we spend a lot of money, we've got an in-house
compliance. All of that costs money and that's why we charge 25
percent," he said.
Lowther says the payouts, which average 2,750 pounds per
case, are treated as an unexpected bonus by many customers and
used for one-off purchases like holidays and home improvements.
Nigel Walker, a 41-year-old television engineer from south
London, was awarded 3,000 pounds ($4,800) in compensation from
Bank of America's MNBA, and Halifax, part of Lloyds,
and does not regret giving up 20 percent in commission to a
claims management company.
"I suppose I could have had the whole 3,000 pounds if I'd
claimed myself but, the point is, I would never have done it off
my own bat."