The mis-selling of payment protection insurance is costing the banks £40 billion ($49 billion) in admin and compensation claims — and it does not look like the scandal is going to come to an end any time soon.
The watchdog Financial Ombudsman Service said in a report on its website that PPI remains the most complained about financial product at the moment as it received 42,907 PPI complaints between July and September.
PPI was a form of insurance intended to pay out if consumers failed to make payments on their loans. Many consumers were duped into buying it, or did not know how it worked.
PPI was wrongly sold alongside loans, credit cards and mortgages and banks have been forced to pay out to customers who were wrongly sold the coverage.
The Financial Ombudsman has received a total of nearly 1.5 million PPI complaints since 2003. However most of the complaints flooded into the watchdog in 2011. This is due to the banks losing a High Court challenge against a decision of the former City regulator, the Financial Services Authority (FSA), that year.
The court case centred on new FSA rules which forced banks to pay out on mis-sold PPI. The banks argued that the rules were unfair because they would be applied retrospectively, but they ultimately lost the case, which meant that thousands of customers were free to re-open claims for compensation.
PPI has since been banned, but banks were forced to pay out to those who had been mis-sold the payment insurance. They have set aside an estimated £40 billion to deal with claims since then, and £25 billion of that has now been paid out, which means banks are now paying out with significantly fewer resources.
Lloyds has set aside £17.1 billion, Barclays has set aside £8.5 billion, RBS £4.7 billion, and HSBC £2.9 billion.
The Financial Conduct Authority (FCA) has proposed a June 2019 cut-off date for any new complaints, but claims continue to pour in. To make matters worse for banks, more than half the complaints — 57% — made between July and September were upheld in favour of customers.
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