Banks Face [Pounds Sterling]4bn Blow in PPI Mis-Selling Scandal; Tens of Thousands of Customers Sold Cover against Redundancy May Get Payments
Byline: Jo Thornhill
BANKS could be forced to reopen tens of thousands of mis-selling complaint cases over payment protection insurance and pay compensation of more than [pounds sterling]4 billion following a legal investigation. Even consumers who have never complained about the sale of a policy with a loan or a mortgage could find themselves being contacted by their provider and offered compensation.
A judicial review brought by the banks against the Financial Services Authority and Financial Ombudsman Service began last week at the High Court.
The banks argue that the criteria the watchdogs are using to decide on complaints is more onerous than the rules that were in force at the time the insurance policies were sold. They say it is unfair to apply the rules retrospectively.
But if the banks lose their case they will have to look again at thousands of policies they have sold.
Payment protection insurance covers debt repayments in the event that a policyholder is unable to work due to illness, injury or redundancy. But many consumers found that they would not qualify for a payout due to exclusions in the small print. Others did not even know that they had taken out the cover as the cost had been rolled up with their loan.
The FSA took over regulation of PPI in January 2005, but the FOS can also look at cases that pre-date this if they were sold by banks or building societies.
Under the new rules of sale, providers must talk through the key features of the cover, pointing out any exclusions. It must also be made clear to the customer that cover is optional when taking out a loan or credit card. This rarely or never happened in the past.
Regulators say that PPI complaints remain a huge problem. The Ombudsman is struggling under the weight of the growing case load.
So far more than 160,000 cases have been referred to the FOS and it is receiving up to 3,000 new cases every week. And in a figure that shames the major lenders, the Ombudsman has upheld the complaint in 89 per cent of the PPI cases it has dealt with.
Adam Phillips, chairman of the Financial Services Consumer Panel, the Government body set up to protect the interests of consumers, says the judicial review is a cynical ploy by the banks to delay further a resolution for thousands of customers.
Some banks, including HSBC and Lloyds, have put PPI complaint cases on hold while the review takes place, even though they know this process could take as long as six months.
'Banks must continue to deal with PPI cases on their merits and not try to pass the buck to the FOS,' says Phillips.
'Banks should hold up their hands and admit their mistakes. It is time for the industry to stop hiding behind expensive lawyers, leaving consumers to wait years for the financial redress they deserve.'
Ken Wilson, 70, is hopeful that a positive outcome from the judicial review will add weight to his PPI mis-selling case, although it dates back more than ten years. …