Millions of people mis-sold payment protection insurance may have been fobbed-off or short-changed by their bank, it emerged yesterday.
In the latest shameful episode for the UK’s biggest high street lenders, the City watchdog has ordered them to re-open 2.5million PPI complaints made in 2012 and 2013.
The Financial Conduct Authority is concerned huge numbers of customers have seen their complaints unfairly rejected, or not received enough compensation if their claim was successful.
More than two-and-a-half million complaints about payment protection insurance (PPI) are to be re-opened
The regulator has also identified a further two million ‘high-risk’ customers who are likely to have been mis-sold PPI but have not yet complained.
Banks have been instructed to contact these people over the coming months. Some 3.2million high-risk customers who have not made a claim have already been contacted.
The latest edict from the watchdog means banks could be forced to shell out billions of pounds extra in compensation, as pay-outs typically range between £1,500 and £2,000.
The FCA ordered banks to trawl through old cases after becoming alarmed by a sharp increase in PPI complaints rejected by banks in the latter part of 2012 and early 2013.
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During that period four in ten disputes were rejected, up from just one in ten.
Martin Wheatley, chief executive of the FCA said: ‘Making sure anybody previously mis-sold PPI is treated fairly now, and paid redress where it’s due, is an important step in rebuilding trust in financial institutions. In around 2.5million complaints this was not necessarily the case so, at our request, firms will be looking at these complaints again.’
The Financial Ombudsman Service, which is the last resort for disgruntled customers, receives 5,000 complaints a week about PPI.
Of these it is upholding 65 per cent in favour of the customer – suggesting huge numbers of legitimate complaints are being thrown out by banks.
Credit card providers, banks and lenders will reconsider complaints made between 2012 and 2013
Last night one MP accused banks of treating customers with contempt. John Mann, a Labour member of the influential Treasury Select Committee, said; ‘The question has to be asked why the banks are still not treating customers fairly. Yet again, they seem to be rigging the system to suit themselves.’
PPI is comfortably the biggest financial mis-selling scandal to hit the UK, with more than £21billion put aside by banks to compensate customers.
By far the biggest culprit is Lloyds, which has set aside £10.4billion so far.
Latest figures from the City watchdog show more than 13million complaints have been lodged since 2007. Of these around four million have seen their complaints rejected, with £16billion paid out in compensation so far.
Payment protection insurance was advertised to customers as a safety net which would protect them if they lost their jobs or became too sick to work.
But because it was so profitable for banks, it was routinely mis-sold to customers who did not need it or want it. It was even sold to customers who would never have been able to claim on the policy, such as the elderly, the sick and the self-employed.
Around 45million policies were sold between 1990 and 2010, with banks raking in £44billion in premiums.
After years of insisting they had done nothing wrong, banks were forced to start compensating millions of customers after losing a High Court battle with the City watchdog in April 2011.
But some banks have been slow to learn from their mistakes, with Lloyds fined £4.3million by the City watchdog in February last year for delays in compensation payouts.
PPI MIS-SELLING - HOW THE FINANCIAL DISASTER UNFOLDED
PPI was designed to protect borrowers' payments.
If the borrower lost their job, had to take maternity leave or suffered from loss of income that they could not make repayments the insurance would have protected them to cover the costs until the policyholder is able to again.
The misselling of PPI grew into the biggest financial scandal in the UK within the past five years and has cost banks millions of pounds.
Action wasn't taken until 2005 when the FSA took over regulation of the general insurance market.
Citizens Advice also issued a complaint to the Office of Fair Trading (OFT).
That complaint included evidence of:
Excessively high prices.
Only partial protection, with many exclusions which prevent many seemingly reasonable claims.
Mis-selling, including high pressures sales tactics.
A slow and often unfair claims process when consumers were eligible to claim.
In January 2009, a year after the OFT handed its investigation over to them, the Competition Commission recommended that sales of PPI be banned alongside lending products such as credit cards and loans.
In August 2010, the FSA published its PPI consultation paper which recommended that banks who had engaged in mis-selling should compensate all the customers who had been sold products using the same methods.
The British Banking Association (BBA), a trade body for all UK banks, appealed against the FSA rules by seeking a judicial review to have them annulled or curtailed.
By May 2010, 30 per cent of all cases coming in to the Financial Ombudsman Service concerned PPI.
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