Why Are Banks So Unhappy About PPI Compensation?

By: Nik Jones

The mis-selling of payment protection insurance (PPI) and PPI compensation is one of the big consumer stories of our time.

PPI was marketed as a point-of-sale product which could be added conveniently to a credit purchase, loan or mortgage to cover payments in the event of ill-health, injury or redundancy.

The arrangement seemed a sensible and practical solution to the possibility that consumers - through no fault of their own - might at some point not be able to pay the instalments on the various credit agreements they had taken out.

Last year, the banks paid back £1.9 billion in PPI compensation to customers who had been mis-sold PPI policies.

In April 2011, the British Bankers' Association (BBA) was unsuccessful in its legal bid to force the Financial Services Authority (FSA) to reconsider regulation which opened the floodgates for thousands of consumers to reclaim PPI because they had been mis-sold PPI policies.

Some of the reasons why a PPI policy might not be considered suitable for a customer include:

- Customers were sold policies when they were unemployed, self-employed or retired - meaning they were not eligible to take out cover for loss of earnings

- Customers were forced to take out PPI in order to obtain a loan and were not told they could shop around for policies

- Some customers already had policies in place through their employment or other insurances which already covered them

- Customers who paid off loans early sometimes did not receive a PPI refund as a result - or PPI payments increased automatically when the loan increased

- Some customers were simply not given enough information - or brokers did not explain policies clearly to customers - when they bought them.

Over the next year, banks are having to send out between four and 12 million letters to customers who may be eligible to reclaim PPI - and paying out PPI compensation could in the future top even last year’s figure of £1.9bn, as more customers reclaim PPI.

Banks are now saying that many claims for PPI compensation may be "speculative" or even fraudulent, as unscrupulous claims companies try and get a share of the PPI compensation pot.

As many as 50% of claims are "spurious", banks have suggested - however, the Ministry of Justice (MoJ) has in the last year closed down around one in five claims companies handling PPI compensation to eliminate poor practice.

Some companies which have ceased to handle PPI claims may also not wish to continue in this sector, says Anthony Sultan, who is an executive member of the trade association the Claims Standards Council.

Some PPI claims were put on hold while the outcome of last year's judicial review into the Financial Services Authority's regulation of PPI mis-selling was awaited.

Since then - and as more customers who have been mis-sold PPI policies realise they can reclaim PPI - it has become clear that the banks will have pay out more PPI compensation for mis-sold policies, hence the millions of letters being sent out to customers.

The FSA's managing director Martin Wheatley said in March:

"So far, the majority of payouts have been for complaints received before - or put on hold during - the judicial review. However, we are now beginning to see firms considering how to treat customers who were mis-sold, but have not complained."

The letters being sent out by banks will state the legal time limits allowed for PPI refund claims - for more advice, contact a reputable company which handles PPI compensation claims as soon as possible.

PPIrefund4me is a regulated claims management company that specialises in seeking PPI refunds for clients who have been mis-sold PPI policies.

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PPI Refund 4 Me is a trading name of UKMS Money Solutions Limited regulated by the Ministry of Justice in respect of regulated claims management activities. CRM26720

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