Mis-selling of payment protection insurance (PPI) has forced each of the ëbig fourí banking groups in the UK to set aside billions of pounds in order to pay compensation to customers. PPI should provide cover to ensure loan repayments can be met if the borrower is unable to work due to accident, sickness or unemployment. For many years, this product was aggressively sold, as it was extremely profitable, but now the banks are suffering the consequences of their PPI selling frenzy. Many policies were not designed with the customerís interests in mind, and were often sold without proper assessment of whether the customer wanted or needed the insurance, and without the product being properly explained. Many people have even been paying for PPI for years without realising it.
PPI Compensation Provisions
For the quarter 3 2012 trading update Lloyds has set aside £5.3 billion for PPI compensation, Barclays £2 billion, Royal Bank of Scotland (RBS) £1.7 billion and HSBC £1.2 billion. Evidence of the impact PPI has had on Lloyds can be seen in its £3.47 billion pre-tax loss in the first quarter of 2011, when it had made a £721 million profit in the first quarter of 2010.
Industry commentators estimate that the UK financial services industryís total bill for PPI compensation could reach in excess of £13 billion.
The Cost of PPI Compensation Claims
Announcements of the ever-increasing amounts set aside for PPI compensation have resulted in sometimes significant falls in bank share prices. This has additional implications for the UK taxpayer, because RBS is 82% owned by the taxpayer and Lloyds 40% publicly owned, following the banking crisis of 2008 when both groups required a Government bailout. The compensation bill is delaying these banksí return to profitability and hindering the Government's attempts to return them to private ownership.
In addition to the compensation bill, most financial institutions have been forced to employ significant numbers of extra staff to deal with the sheer volume of PPI complaints. The Financial Ombudsman Service (FOS), which considers complaints where the customer and the firm cannot reach agreement, has also been forced to increase its staff numbers by 25% in the 12 months to November 2012, largely due to the number of PPI complaints.
The damage caused to the banks' reputation by PPI cannot be expressed in purely monetary terms. PPI mis-selling has further tarnished a banking sector widely held responsible for the credit crunch. In recent years, the UK banks have also attracted unwelcome publicity regarding large executive bonuses; the sale of interest rate swaps and LIBOR fixing.
The banks have already paid a great deal in PPI compensation, but with 35 million policies sold, there are many more potential claims to be settled. Why not consider making a PPI complaint, as a slice of the funds the banks have set aside could be waiting for you! You must complain to the firm who sold you the plan, and hopefully a sizeable chunk of redress will follow. If not, then you can try your luck with the FOS.
All information presented in this article is accurate as of February 2013