The Public Accounts Committee (PAC) has called on government departments and regulators for more action in protecting consumers from the mis-selling of financial products.
The MPs' call follows an inquiry into the regulation and redress of the issue. According to the committee, more than 12 million consumers were mis-sold payment protection insurance (PPI) and firms have paid more than £22bn in compensation since April 2011.
Based on the report Financial services mis-selling: regulation and redress, published last week, claims management companies (CMCs) have taken up to £5bn out of the compensation set aside for consumers.
The report explained that the process for those consumers to claim compensation through the Financial Ombudsman Service was "straightforward and free" but in the period 2014/15, 80% of such complaints were made through CMCs, who charged between a quarter and a third of any compensation paid.
The PAC criticised the public bodies involved - the Treasury, the Ministry of Justice, the Financial Conduct Authority (FCA) and the Ombudsman - for having been "too slow" in taking responsibility for the situation and "too passive" in allowing it to happen.
Chair of the PAC Meg Hillier said: "The widespread mis-selling of PPI is a vivid demonstration of the risks facing consumers in the financial services market."
In addition, the PAC noted the Ombudsman had a "large backlog of PPI claims", with many consumers having to wait for more than two years for a decision.
They suggested by the end of July 2016 the Ombudsman should set out publicly a timetable and a report on its progress.
Hillier said: "The fall-out is still with us. Many people have waited years for a decision on compensation and, because of the way they have pursued their claims, even then they may not receive the full amount. Serious risks of further mis-selling remain."
The PAC acknowledged that the FCA had taken "some action" to tackle the cultural problems behind mis-selling by financial services firms, but said that the regulator had not done enough.
The FCA had previously withdrawn a planned review of the banks' culture, but the committee noted it had not said what culture it expected firms to have.
"There is no guarantee that any improvements in culture will stick as the regulatory spotlight moves away," said the committee.
It urged the FCA to outline the actions it will take to improve the culture in financial services firms.
MPs also warned of the risks pension freedoms that could potentially trigger for future mass mis-selling and said the regulator needed to ensure that consumers understand the financial products they are buying and the possibility of claiming compensation.
In addition, the committee criticised the Treasury for not knowing how effective the FCA is in addressing the problem with "no good indicators" of the current level of mis-selling.
It suggested the two bodies need to develop indicators on the extent of mis-selling, and assess regularly how effective their actions are in reducing it.
"It is vital the government and regulators take fresh action now to better protect taxpayers' interests, both in reducing the potential for mis-selling and, when it does occur, to ensure those affected get their due compensation," Hillier said.
The FCA and the Treasury have yet to comment at the time of writing.
