| Banks, Mortgages, PPI, PPI Deadline, PPI Refund

The Financial Conduct Authority, has recently announced a 2019 deadline for all customers making claims for the mis-selling of payment protection insurance (PPI).

Why Is There a Deadline?

The FCA has claimed that imposing a deadline would mean that banks can draw a line under what has been the most expensive scandal ever witnessed in the UK banking sector. Latest estimates have claimed that the total bill so far has totalled more than £37bn, whilst the FCA has claimed that £24.2bn has been paid out to customers since 2011, the rest making up the cost of assessing claims plus provisions for more pay-outs.

When Did it All Start?

PPI has been sold with mortgages, credit cards and unsecure loans for the last few decades. Initially designed to protect the repayments of those who were to fall ill or lose their jobs, it was the subject of massive derision amongst consumer groups such as Which? and Citizens Advice – the latter lodging a ‘super-complaint’ in 2005.

How Many Customers Were Affected?

The now disbanded body, the Financial Services Authority told parliament that over 50 million policies had been sold. Roughly 45 million of these were sold by banks, netting them over £44bn. It isn’t possible to fully assess how many of these policies were mis-sold – initial estimates by the Financial Conduct Authority claimed that 3 million people were affected – but by January of this year it was estimated that 12million customers had received compensation, totalling £24.2billion.

Selling PPI proved to be very profitable for the banks and lenders. When presenting the evidence to parliament, the regulator highlighted one particular PPI policy that was sold alongside mortgages, which cost the customer over £20,000 over the lifetime of the loan even though the maximum they could claim back was £31,000. These huge profits for the banks helped to highlight why mis-selling began.

Is the Deadline the Same for Every Customer?

The consumer panel, which represents consumer interests at the FCA, has put forward its own reservations about the deadline. In the submission to the FCA about the deadline, it pointed out that over 5 million customers already face the prospect of an early cut-off date. This is because they have already had contact with their banks and, if covered by certain rules, they will already have a three-year deadline to contend with.

How Much More Will the Banks Have to Shell Out?

Given the amount of attention PPI has garnered over the years, it’s strange to think that there are some people that haven’t gotten around to make a claim. However, according to the Professional Financial Claims Association (PFCA), only half of the sums currently paid out represent refunded payments. The rest is interest, with the banks and lenders having to pay 8% interest on the money being returned. This trend suggests an even higher bill for PPI.

What’s the Latest?

A recent court ruling in the Plevin vs Paragon case also looks fairly likely to add to the PPI bill. The court concluded that if a PPI seller failed to disclose to a customer that it would receive a large commission from the product provider, then this was an unfair sale under the 1974 Consumer Credit Act. The case came to light when, Susan Plevin, a near retired widow, found that 72% of the £5,780 premium she paid was commission for the lender and the broker that sold the loan.

What’s Next?

The FCA will run a consultation until mid-October before finalising its plans. Consumer groups are predicting a huge wave of further PPI claims up until that point.

 

 

 

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