PPI News

FCA to Consult about PPI Compensation Time Limit

October 2, 2015

The Financial Conduct Authority (FCA) has announced that it is to “consult” various parties about the introduction of a PPI compensation time limit.

The FCA issued a statement this morning containing proposals to introduce a PPI compensation time limit and proposals on how claims for PPI compensation should be handled when the customer is claiming that the amount of commission from the PPI sale was not disclosed.

The proposals are intended to be the starting ground for consultations that will continue for the rest of the year, and are significantly favourable to banks and credit card companies who mis-sold payment protection insurance to millions of customers.

The Proposed PPI Compensation Time Limit

Several times in the past, banks have approached the FCA requesting a PPI compensation time limit to restrict the amount of compensation they have to pay. On these previous occasions, the FCA has rejected calls for a PPI compensation time limit and said that, if one was to be introduced, credit providers would have to fund a significant marketing campaign to inform customers of their rights.

Now, using the excuse that the PPI complaints procedure is “open-ended”, the FCA is proposing to introduce a two-year PPI compensation time limit in April 2016. This would mean that customers who have been mis-sold PPI will have to make their claim before April 2018 or forfeit their right to compensation. Consumer protection groups are yet to comment on this proposal.

Compensation for Undisclosed PPI Commission

In the FCA´s statement, the issue of Plevin –v- Paragon Personal Finance was also raised. In this Supreme Court case, Susan Plevin successfully claimed that PPI was mis-sold to her because of the high level of commission that was deducted from her single premium (72%). Judges at the Supreme Court agreed that this created an unfair relationship between lender and borrower under §140A of the Credit Consumer Act.

The result of the court case created an issue for the FCA inasmuch as it meant customers could claim PPI compensation on the grounds that they were not informed of the percentage of their premium that was being deducted for commission. As Susan Plevin claimed, she would not have purchased PPI (and paid interest on the premium for ten years) if she was aware of how much commission was being deducted.

FCA Proposals for Undisclosed PPI Commission Redress

To address the possibility of a deluge of PPI compensation claims for undisclosed PPI commission, the FCA has proposed that only claims in which the undisclosed commission was greater than 50 percent should be considered for redress. The FCA suggests that the difference between the undisclosed commission and 50 percent should be refunded to the customer, plus historic interest, plus 8 percent statutory interest.

According to the Competition Commission´s Report of 2009, the average commission on single premium PPI sales between 2002 and 2006 was approximately 67 percent. This would make it likely that most customers who purchased a single premium payment protection insurance policy within this period would be entitled to claim compensation for undisclosed PPI commission. No figures have yet been released on commissions deducted after 2006, or how the regress scheme applies to monthly paid PPI premiums.

The Question of Comparative Redress Remains Unanswered

One of the biggest complaints about how credit providers have handled PPI compensation claims for single premium policies is “comparative redress”. Comparative redress is the practise of refunding a customer the difference between what they paid for a single premium PPI policy and what they would have paid for a monthly premium equivalent.

The FCA said in its statement that, if redress has been already been paid to a customer, the credit provider does not have to act on a further claim for compensation for undisclosed PPI commission. This implies that if a customer has already received “comparative redress”, it excludes them from claiming compensation for the non-disclosure of PPI commission – irrespective of how high the commission rate was.

Banks Not Required to Retrospectively Review PPI Sales

The final (proposed) slap in the face for the consumer is that the FCA is not going to ask banks and credit card companies to retrospectively review PPI sales that fall within the scope of §140A of the Credit Consumer Act (the non-disclosure of commission creating an unfair relationship) or review previously rejected PPI claims for compensation.

Effectively the FCA is proposing that each individual customer find out for themselves if they are entitled to make a claim for PPI compensation within the proposed PPI compensation time limit. We believe consumer protection groups might have plenty to say about this proposal!

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FCA Delays Announcement on PPI Undisclosed Commission Compensation

September 28, 2015

The Financial Conduct Authority has delayed an announcement on PPI undisclosed commission compensation that could cost banks a further £30 billion.

Since the Financial Conduct Authority (FCA) first started keeping records in January 2011, banks and other credit providers have paid out more than £20 billion in PPI compensation to credit consumers who were mis-sold payment protection insurance.

However, that figure could be set to more than double if the city watchdog agrees with the Supreme Court decision in Plevin v Paragon Personal Finance that the failure to disclose the distribution of PPI commission was in breach of the Credit Consumer Act.

In Plevin v Paragon Personal Finance, Susan Plevin successfully argued that she would not have agreed to a single premium PPI policy costing £5,780 had she known that £4,060 of the charge was being kept as commission by the broker and loan company that sold her the insurance product.

The implication of the Supreme Court verdict is that anybody who was sold a PPI policy without being given a breakdown of the commission being deducted from the premium will be able to claim PPI undisclosed commission compensation.

This applies to periodic and monthly-paid PPI policies as well as single premium PPI policies; and, as bank employees were paid commissions on their sale of payment protection insurance, will apply to many millions of policies which were otherwise sold in compliance with FCA guidelines.

Insurance experts believe that, should the FCA accept the Supreme Court verdict, there will be a new wave of PPI claims that could cost banks and other credit providers more than £30 billion – mostly due to the interest charged on single premium insurance policies over the lifetime of a loan.

The key question that needs to be answered is whether or not the failure to disclose commission payments on PPI policies was in breach of the Credit Consumer Act. If so, the volume of PPI undisclosed commission compensation payments could more than double those overseen by the FCA in the past four and a half years.

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CAB Report Shows Enquiries about PPI Compensation Still High

September 21, 2015

The Citizens Advice Bureau has released in latest quarterly “Trends” report showing that enquiries about PPI compensation are still running at high levels.

The Citizens Advice Bureau produces a quarterly “Advice Trends” report that lists the volume of enquiries it receives over many different topics that results in advice being provided to members of the public. The report is used as a barometer by many government departments, regional agencies and organisations to identify issues which concern the public and where steps need to be taken to address those issues.

One of the most significant outcomes from the data compiled by the Citizens Advice Bureau was the launching of a “super complaint” to the Office of Fair Trading in September 2005. The super complaint led to new regulations for the selling of payment protection being introduced, and the recovery of compensation for those who had been mis-sold it.

However, ten years after the initial steps were taken to stop the mis-selling of payment protection insurance, the Citizens Advice Bureau is still receiving a significant number of enquiries about PPI compensation. Its latest “Advice Trends” report shows that in the first quarter of 2015/16 (April to June 2015) the charity received 1,180 enquiries about PPI compensation.

Although considerably less than the corresponding periods over the past three years (enquiries about PPI compensation topped 15,000 in the whole of 2013), the volume of enquiries shows that there are still plenty of customers who are unaware about their rights to claim PPI compensation. Gillian Guy – the Chief Executive of Citizens Advice – commented:

“The PPI scandal reached pandemic proportions. It is a real lesson for banks and the wider industry that they cannot get away with mistreating their customers. After dragging its feet when we first raised concern about PPI, the industry is paying the price for not taking action sooner. While regulation and banks´ approach to customer service has improved in recent years, the seismic failings around PPI should serve as a constant reminder that firms cannot get away with ripping off customers”.

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No Word Yet on PPI Claims for the Failure to Disclose Commission

July 27, 2015

Two months after issuing a statement saying it was looking into the implications of Plevin v Paragon Personal Finance, there has been no word from the FCA about PPI claims for the failure to disclose commission.

In November 2014, Susan Plevin won a landmark court case in which the Supreme Court ruled the failure to disclose large commission payments on a single premium PPI policy made the relationship between the lender and the borrower unfair.

The Supreme Court made its decision in Plevin v Paragon Personal Finance after hearing that Susan was charged £5,780 for PPI on a personal loan of £34,000, and that commission payments of £1,780 and £2,280 were paid to the broker and Paragon Personal Finance respectively.

The implications of the Supreme Court verdict are that any credit customer who was not advised how much of the premium was being paid to brokers should be entitled to make PPI claims for the failure to disclose commission.

At the end of May, the Financial Conduct Authority (FCA) issued a statement saying it was “considering whether additional rules and/or guidance are required to deal with the impact of the Plevin decision”. An announcement of its views was expected weeks ago, but as yet there has been no indication of how the FCA intends to deal with a potential explosion of PPI claims for the failure to disclose commission.

Quite possibly, the delay in providing an opinion about PPI claims for the failure to disclose commission could be tied into a review of PPI claims procedures that was announced in January. The review is considering whether the current PPI claims procedures are meeting their objectives, or whether new measures should be introduced.

The new measures include a consumer awareness campaign and the possible introduction of a time limit in which to claim PPI compensation. Seven months after that announcement was made, we are still waiting to find out what measures – if any – the FCA will introduce that will affect the rights of consumers to claim compensation for being mis-sold PPI.

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£117 Million Fine for Failure to Investigate PPI Claims against Lloyds

June 5, 2015

The failure to investigate PPI claims against Lloyds fairly has landed the Lloyds Banking Group with a record fine from the Financial Conduct Authority.

The Financial Conduct Authority (FCA) has issued a record fine of £117,430,600 against the Lloyds Banking Group following an investigation into the way the group handled complaints from customers who had been mis-sold payment protection insurance.

The investigation covered the failure to investigate PPI claims against Lloyds from 5th March 2012 to 28th May 2013, during which time the “complaint uphold rate” – the percentage of PPI claims that were settled in customers´ favour – fell from 82% to 26%.

The decline in upheld complaints was attributed to guidelines being issued to more than seven thousand claims handlers that Lloyds PPI sales processes were compliant unless proved otherwise. This “overriding principle” resulted approximately 850,000 claims for PPI being rejected without the required impartial investigations being conducted.

The main reason for failure to investigate PPI claims against Lloyds was that claims handlers were told to make only “reasonable attempts” to contact customers when further information was required to conduct impartial investigations. When claims handlers were unable to contact customers – and there was insufficient evidence to support a claim for being mis-sold PPI – it was considered that the customer had failed to meet their “burden of proof” and the claim for PPI compensation was rejected.

However, the Lloyds Banking Group failed to inform claims handlers of known failings in the sale of PPI that compromised their judgement. These failings included the automatic inclusion of PPI in quotes for loans, the failure of sales advisors to assess a customer´s suitability for PPI, and the faking of PPI agreements in order to meet sales targets. It was not until October 2012 that claims handlers were told that customers who applied online for a credit facility were automatically opted in to PPI.

The actions of the Lloyds Banking Group resulted in the failure to investigate PPI claims against Lloyds fairly. Some customers whose PPI claims were rejected were told that their complaint had been “fully investigated” with “appropriate weight and balanced consideration to all available evidence”, when this was not the case. Other customers, who received an offer of settlement, were offered “ex gratia” payments, rather than receiving a full refund of the PPI compensation they were entitled to.

Speaking about the £117 million fine for the failure to investigate PPI claims against Lloyds fairly, Georgina Philippou – the FCA´s Acting Director of Enforcement and Market Oversight – said: “The size of the fine today reflects the fact that so many complaints were mishandled by Lloyds.  Customers who had already been treated unfairly once by being mis-sold PPI were treated unfairly a second time and denied the redress they were owed. Lloyds’ conduct was unacceptable.”

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FCA Looking at New Reason to Claim PPI Compensation

May 27, 2015

The FCA is likely to introduce revised guidelines for the selling of PPI after the Supreme Court gave customers a new reason to claim PPI compensation.

The likely need to introduce revised guidelines for the selling of PPI comes as a result of a Supreme Court ruling in the case of Plevin –vs- Paragon Personal Finance. This case revolved around an allegation that PPI had been mis-sold to the claimant because her broker and credit provider had not revealed how much commission they were receiving from the sale of the product.

The claimant – Susan Plevin – had taken out a £34,000 personal loan in 2006 to consolidate her existing financial obligations. Alongside the loan she purchased a single-premium PPI policy for £5,780 which was added to the amount of the loan. The loan and the PPI policy were both arranged with Paragon Personal Finance through a broker – LLP Processing (UK) Ltd.

Of the £5,780 Susan paid as a PPI premium, only £1,720 was paid to Norwich Union (the under-writers of the policy). Paragon Personal Finance retained £2,280 as a commission while LLP Processing (UK) Ltd kept £1,870 as their commission for brokering the sale. Furthermore, the PPI policy was only for five years, whereas Susan´s consolidation loan was for ten years.

Partial Compensation for Mis-Sold PPI

In 2010, Susan successfully made a claim for PPI compensation against LLP Processing (UK) Ltd on the basis that PPI had been mis-sold to her due to the policy not covering the full life of her loan. As LLP Processing (UK) Ltd had since gone out of business, Susan received £3,000 partial compensation from the Financial Services Compensation Scheme.

Not satisfied with the settlement – because she had paid five years of interest on the single premium for the PPI policy – Susan made a claim against Paragon Personal Finance. Susan claimed in her legal action that she would not have agreed to the purchase of PPI if she had been aware that 71.8% of the premium was going to be retained by Paragon and the broker as commission.

The case was heard by the Manchester County Court and the Court of Appeal – who both ruled that Paragon Personal Finance and LLP Processing (UK) Ltd had fulfilled their obligations to Susan. The courts said that, by informing Susan on the paperwork she received that a commission was involved, the two companies were in compliance with the Insurance Conduct of Business Rules.

However, Susan disagreed with the ruling and took her claim for PPI compensation to the Supreme Court. At the Supreme Court, the judges ruled that under the Credit Consumer Act 1974 it was unfair for Susan to be charged such high commissions without her knowledge and agreed that she had purchased the PPI policy without having given her informed consent. Handing down the verdict, Lord Sumption said:

“A sufficiently extreme inequality of knowledge and understanding is a classic source of unfairness in any relationship between a creditor and a non-commercial debtor. Any reasonable person in her position who was told that more than two thirds of the premium was going to intermediaries, would be bound to question whether the insurance represented value for money, and whether it was a sensible transaction to enter into. The fact that she was left in ignorance in my opinion made the relationship unfair.”

The case will now return to the Manchester County Court for reconsideration, and a possible refund of loan repayments in addition to the refund of Susan´s PPI payments (1).

New Reason to Claim PPI Compensation Affects Previously Rejected PPI Claims as Well

The implication of the Supreme Court´s verdict is that customers now have a new reason to claim PPI compensation – the non-disclosure of how much commission was being taken by the credit provider and/or a broker. Furthermore, the verdict also reverses a previous ruling by the Court of Appeal (Harrison –vs- Black Horse Ltd) that said the failure to disclose commission levels did not constitute a breach of the Credit Consumer Act 1974.

This new reason to claim PPI compensation may therefore also be important to customers who have attempted to claim PPI compensation before. Previous to the Supreme Court´s verdict, Harrison –vs- Black Horse Ltd was used by claims handlers as an excuse to reject PPI claims from customers who had complained that they had been mis-sold PPI as a bad value product.

The verdict of the Supreme Court will enable many customers who were mis-sold PPI to re-apply for compensation with the greater likelihood of success, as well as providing customers who believed they did not qualify for a refund of their PPI payments with a new reason to claim PPI compensation.

It is not yet know what options the FCA are looking at to deal with this new reason to claim PPI compensation, or whether any action will be applied retrospectively. Consequently it is advisable for customers who believe they may have been mis-sold PPI due to the non-disclosure of commission to contact our claims helpline at the earliest possible opportunity.

(1) Under Section 140A of the Credit Consumer Act, Manchester County Court has the discretionary power to reduce or discharge a personal loan when it is determined that the relationship between the debtor (in this case Susan) and the creditor (Paragon Personal Finance) is unfair.

As Susan´s personal loan is coming to an end, it may be possible that Manchester County Court not only discharges Susan from the remainder of the loan, but orders Paragon Personal Finance to refund Susan some of the loan repayments she has made in recent years.

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PPI Compensation Claim Procedures put under the Spotlight

January 30, 2015

The Financial Conduct Authority has announced that it is to review PPI compensation claim procedures to see if the current approach is meeting objectives.

The current PPI compensation claim procedures have two objectives – to secure appropriate settlements of compensation for customers and enhance the integrity of the financial system in the UK. Since 2011, the Financial Conduct Authority (FCA) has overseen PPI compensation claim procedures, and the FCA is now conducting a review to determine whether the current procedures are meeting their objectives or need changing.

Measures being looked at by the city watchdog include a consumer awareness campaign, the introduction of time limits on PPI compensation claims and other changes to the current claim procedures. While the review is ongoing, banks and other credit providers have been told to continue using the existing PPI compensation claim procedures until the FCA unveils its conclusions from the review in the summer.

Since January 2011, the FCA has overseen more than 14 million complaints from customers that were mis-sold PPI – while banks have paid out more than £17.3 billion in PPI compensation. The latest monthly data from the FCA (October 2014) indicates a slight decline in the amounts of PPI compensation being paid each month:

January £389.2m
February £329.5m
March £349.8m
April £410.3m
May £407.4m
June £390.3m
July £383.2m
August £312.8m
September £353.8m
October £375.6m

However, the trend of declining PPI compensation payments has a long way to go before the scandal draws to a close. Just last month, Caroline Wayman – the Chief Financial Services Ombudsman – commented she expects her department to be “dealing with the fallout from PPI for several years yet”. Ms Wayman revealed that the Ombudsman service is still receiving more than 4,000 complaints each week from customers who have had their claims for PPI compensation unfairly rejected, delayed unnecessarily or underpaid in total.

The Ombudsman has a backlog of over 280,000 PPI-related complaints – more than half of which are expected to be upheld in the customer´s favour. This would indicate that the current PPI compensation claim procedures are not meeting the objective of enhancing the integrity of the financial system in the UK. It will be interesting to see what conclusions are made by the FCA when its review of the current PPI compensation claim procedures is concluded.

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Premiums for Mis-Sold Credit Card Protection Policies to be Refunded

January 27, 2015

The Financial Conduct Authority (FCA) has released a timescale for premiums charged on mis-sold credit card protection policies to be refunded.

PPI ClaimsMis-sold credit card protection policies – which were sold by banks to more than 2 million customers – are considered “worthless” by the FCA, as they were marketed as offering protection against the fraudulent use of a credit card if the card was lost or stolen and duplicated the protection already offered by the credit card provider.

Usually having an annual premium of £25.00, the mis-sold credit card policies have been in existence since 2005 – meaning that some customers could have paid up to 2015 for protection that they already had. After reaching an agreement with the banks and other credit providers that mis-sold the product, the FCA has released a timescale for the premiums to be refunded to customers.

Timescale for the Refund of Mis-Sold Policy Premiums

According to the FCA, letters from the company handling the refund of premiums (AI Scheme Limited) will be sent at the end of the month to customers entitled to a refund for mis-sold credit card protection policies. The letters will ask eligible customers to vote on whether they want the refund scheme to go ahead as detailed below.

Provided that the majority of eligible customers have voted for a refund of their mis-sold credit card protection policies under the scheme, the High Court will be asked in April or May to approve the scheme. When approval is received, AI Scheme Limited will again write to eligible customers with a form to claim a refund of the premiums plus 8% interest as compensation.

When customers complete and return the forms, AI Scheme Limited will distribute the refunds according to how much is due to each customer. The timescale for the refund of mis-sold policy premiums is scheduled for September and October 2015.

Which Banks Mis-Sold Credit Card Protection Policies?

The mis-sold credit card protection policies were marketed under the names of Sentinel, and Safe and Secure Plus. They were also directly available through Affinion International Limited and customers who bought them directly will also be eligible for a refund of the premiums they paid. More recognisable retailers that mis-sold credit card protection policies include:

  • AIB Group (UK) Plc including First Trust Bank and Allied Irish Bank
  • Barclays Bank Plc
  • Capital One (Europe) Plc
  • Clydesdale Bank Plc
  • HSBC Bank Plc
  • Lloyds Bank Plc
  • Northern Bank Limited trading as Danske Bank
  • Santander UK Plc
  • Tesco Personal Finance plc
  • The Co-operative Bank Plc
  • The Royal Bank of Scotland Plc

Tracey McDermott – the FCA´s Director of Supervision and Authorisations – recommended that any eligible customer who receives a ballet paper from AI Scheme Limited should vote in favour of refunding the premiums for the mis-sold credit card protection policies. She said: “If approved, this scheme will provide those who may have concerns about the way their card security product was sold to them with a simple and free way to claim compensation.”

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FCA Orders New Assessment of PPI Compensation Decisions

August 29, 2014

The Financial Conduct Authority has ordered a new assessment of PPI compensation decisions dating back to 2012 to ensure that customers were treated fairly.

The FCA´s order to reassess historic PPI compensation decisions follows recent allegations that PPI compensation claims were unjustifiably rejected, miscalculated and underpaid. The new assessment affects PPI claims on which decisions were made in 2012 and 2013 irrespective of whether customers received compensation for being missold PPI or not.

The aim of the new assessment of PPI compensation decisions is to make sure that PPI claims were handled according to FCA guidelines and that customers were treated fairly. The FCA´s order to review was prompted by an article appearing in the Times in which it was claimed that a substantial number of PPI refund claims were randomly rejected.

According to the Times article, an undercover reporter was allegedly told during his training to be a claims handler for Lloyds that the thought process behind the randomly rejection of PPI refund claims was because customers would often not pursue compensation for being missold PPI once their initial claim had been rejected.

More recent allegations of unfair practices have included that payments of PPI compensation are being deliberately miscalculated to save banks money and that loopholes are being exploited in the payment of single premium PPI claims.

BBC investigators found that credit providers neglected to include overdraft charges that were triggered by PPI premiums in their calculations of PPI refunds, and that the Lloyds Banking Group were using the “comparative redress” loophole to underpay customers who were missold a PPI policy with a single premium.

The new assessment of PPI compensation decisions is also a reaction to the large volume of complaints made to the Financial Services Ombudsman which are subsequently upheld once investigated. Currently more than two-thirds of PPI complaints to the Ombudsman result in decisions being overturned – confirming the FCA´s opinion that credit providers are unfairly rejecting PPI compensation claims or refunding customers less than are entitled to.

Martin Wheatley – the Chief Executive Officer at the FCA – commented that the new assessment of PPI compensation decisions was a “positive move”. He said that the review of previously rejected claims and underpaid compensation settlements was “an important step in rebuilding trust in financial institutions”. The mis-selling of PPI is an unprecedented scandal in the financial industry, and Mr Wheatley acknowledged that “there have been some issues along the way”.

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HomeServe PPI Sales Found to be Non-Compliant

February 13, 2014

The FCA has issued its largest ever retail fine for mis-selling PPI after finding that HomeServe PPI sales were not complaint with its guidelines.

Homeserve Membership Ltd (“HomeServe”) is a domestic emergency repairs service that offers its members the opportunity to purchase insurance against the cost of replacing white goods or the cost of repairing them. Between January 2005 and October 2011, HomeServe enjoyed a period of rapid expansion, during which time – according to the Financial Conduct Authority (FCA) – the company developed a profit-driven culture.

The FCA investigated several areas of the company´s financial operations and found that HomeServe employees systematically took advantage of its elderly and vulnerable client database to mis-sell payment protection insurance as an add-on to its home emergency insurance, and that the company´s management failed to adequately investigate complaints about poor practices from its customers.

The investigation revealed that the Board of HomeServe were “insufficiently engaged with compliance matters” and that senior management was unwilling to address customer concerns about HomeServe PPI sales if there was a cost implication involved. It also discovered that HomeServe employees sold insurance products to more than 69,000 customers without explaining the coverage provided by the products, their exclusions, or that alternative insurance products were available elsewhere.

The total value of HomeServe PPI sales amounted to £16.8 million, which HomeServe will now have to refund to its customers, along with paying a fine of £30,647,400 issued by the FCA for mis-selling PPI. The magnitude of the fine reflects the FCA´s opinion that HomeServe´s employees was particularly negligent in targeting their elderly and most vulnerable clients, and that the company failed to advise its members of an IT issue which resulted in many of them being doubly charged for an insurance product which had been mis-sold to them.

Commenting on the record fine for mis-selling PPI, Tracey McDermott – the FCA’s director of enforcement and financial crime – said “This is a serious case, one that has warranted our largest retail conduct fine and generated a sizeable bill for consumer redress. HomeServe is another example of a firm that has acted without proper regard for its customers over a long period of time. HomeServe promises to provide customers with peace of mind when things go wrong. In fact the firm’s culture, controls and remuneration structures meant that staff were focused on quantity not quality, and there were customers that paid the price for that”.

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