Claims management companies are booming in the wake of the payment protection insurance (PPI) scandal. Firms have reported a huge surge in business after high street banks last week abandoned their appeal against a High Court ruling.
The climbdown by the British Bankers' Association led to estimates that the cost to the banks could top £9bn. Lloyds Banking Group alone estimated that its share of the bill would be £3.2bn.
More than six million PPI policies were mis-sold and with one in five victims turning to claims management firms, the industry could be in line for a huge hike in earnings. Average payouts are expected to be around £2,750, and claims firms charge between 20 to 40% of the total, although they work on a no-win, no-fee basis.
While banks advise customers to take claims direct to them, claims firms say a huge number of people will need their services.
"They don't always understand all the paperwork they've been sent by the banks and it looks like it's going to get more onerous, making it even more difficult for people to resolve their claims," said Mike Ransom, managing director at Investor Compensation, which is part of the accountancy firm Mitchell Farrar, and which was originally set up in 2003.
"Wherever there have been financial sales, there have been financial mis-sales," Mr Ransom said. Still, claims firms do have their critics. James Daley, editor of Which? Money, said: "Banks should now be doing all the legwork, so there is absolutely no need to use claims management firms."
Until recently, banks appeared to have a blanket policy of rejecting claims and letting people take them onto the Financial Ombudsman Service, which has dealt with 200,000 complaints about mis-sold PPI policies since October 2010.
Mr Ransom's firm has been working with Spanish owned bank Santander to streamline the PPI complaints process, and he says some claims can now be settled within 24 hours.