The Committee said the vast sums claims management companies have made from PPI claims, describing this as “a failure of the system of regulation and redress”.

More than 12 million consumers have been mis-sold PPI in the UK and firms have paid out over £22bn in compensation since April 2011. Although affected consumers can claim compensation through the Ombudsman, in 2014-15 80% of PPI complaints were made through claims management companies.

The report states: “In many cases, these companies merely package up payment protection insurance claims, but they typically charge between a quarter and a third of any compensation subsequently paid … the public bodies involved have been too slow in taking responsibility for this situation, and too passive in allowing it to happen.”

The Committee said pensions freedoms represented another potential trigger for future mass mis-selling and since the regulator withdrew its banking culture, it has not offered an alternative vision of the culture it expects from banks.

It demanded a report on all the Committee’s recommended changes and their effectiveness in a years’ time and said ‘real-time’ indicators should be used to assess the extent of mis-selling and evaluate action intended to reduce it.

It said many consumers are having to wait more than two years for a decision on compensation and the committee urges that by the end of July, the Ombudsman “should set out publicly a clear timetable for reducing and ultimately eliminating its backlog of PPI claims”.

Meg Hillier MP, chair of the Committee, said the reasons it had heard behind product mis-sales ranged from incompetence to intimidating sales teams and poorly targeted products slamming the regulator’s mixed response.

“This sends a confused message to taxpayers and will do little to reassure potential customers. Our report sets out practical measures to address this and ensure the interests of taxpayers are paramount now and in future.”