Payment Protection insurance (PPI) is in the news again with the UK financial complaints service, the Financial Ombudsman Service (FOS) reporting that its first quarter was the busiest ever with over 81,000 complaints – more than double the number received in the same period 2010.

Payment protection insurance, such as mortgage protection insurance, was the main reason for this substantial increase and the FOS have been receiving on average over 900 PPI cases each day.

Banks and others are already reporting record numbers of new complaints and it will be some time before we see the impact of those on our figures. So it’s difficult to tell whether we will be seeing still higher numbers yet – or whether the figures will now start to decline.

Tony Boorman, principal ombudsman at the FOS said, “When we come to publish the results for the next quarter, I expect the position on PPI will have changed again.”

“With complaints-handling rules ‘waivers’ agreed by the Financial Services Authority, the rate of new PPI cases has slowed – for the moment at least. ”

And the efforts by many banks to clear the backlog of cases that has built up should see record volumes of cases closed, and high uphold rates.

Bad Banks

Unsurprisingly, the bulk of complaints have concerned PPI after the banks lost an appeal on a ruling to pay back the policies in the High Court earlier this year. The period also saw both the High Court decision on the PPI judicial review and the decision by the British Bankers’ Association not to appeal that decision.

Figures from some of the banks this week have revealed that the PPI saga is having an adverse effect on their balance sheets.

Barclays said that its profits had fallen by 33% compared to the first six months of last year, with a £1 billion provision for PPI claims largely to blame.

Results from HSBC also showed the bank has put almost £270 million to one side to deal with customers’ claims.

Lloyds Banking Group has also previously revealed that it has put £3.2 billion aside to pay possible claims. PPI was sold by banks on unsecured credit products such as loans, credit cards and some mortgage products.

Santander is the latest bank, and the last of the  big banks to cave in and to set aside money to pay the compensation bill. Santander owns Abbey Alliance and Leicester and Bradford and Binlgley has set aside £543 million for PPI  claims.

In April, the banking industry lost its High Court challenge to new rules on the sale of PPI.

Among other things, the rules require sellers of PPI polices to review all their past sales to see if their customers have a claim for mis-selling, whether or not they have actually complained.

While the legal case was going on the banks put on hold tens of thousands of fresh PPI complaints that came in.

Santander was second, behind Barclays, in the list of most complained-about financial institutions during the second half of 2010.

Related posts:

1. Insurance Brokers Pay for UK Banks PPI Claims
2. Payment Protection Insurance Claims cost Lloyds Bank £3.2 Billion
3. What a bunch of Bankers! UK Banks challenge PPI ruling

Plans to restrict the sale of payment protection insurance (PPI) at the point when loans or mortgage are granted have been set back following a successful appeal by Barclays bank.
The Competition Appeal Tribunal has now been forced to instruct the Competition Commission to back down from its plan to ban PPI sales such as mortgage protection insurance, at this point of the transaction. The Commission released a statement commenting that it would study the judgement closely before deciding what course of action it would take next. In a carefully worded statement however it was made clear that it was only this one small part of their strategy, to make choices clearer for consumers, that was being affected.

A spokesman for the commission commented “The appeal was upheld on one ground which relates to our assessment of the remedy prohibiting the sale of PPI at the point of sale of credit,” before adding that it was because The Commission had been asked to “reconsider the loss of convenience for consumers of not being able to buy PPI at the same time as taking out credit.”

Intended to allow consumers a cushion for repayment of their credit cards, loans or mortgages should they fall ill or lose their job, PPI has been a bone of contention between insurance companies and banks and finance companies for some considerable time. Early this year the Commission outlined a range of limitations on the sale of PPI with some commentators claiming the lack of competition in the field has led to “persistently high prices”. The Commission had stated that from October 2010, lenders would be unable to initiate a sale of a policy for up to 7 days after granting a loan to combat the “point of sale” advantage that the lenders had gained.

However after challenging the Commission’s plan on four separate grounds – three of which related directly to the point of sale restriction, Barclays have successfully convinced a tribunal that putting this plan into place could put customers who actually wanted to purchase cover at a disadvantage.

Referring to the plans laid out by the commission as a “remedy without consent” the Tribunal concluded that the Commission had failed to take into account the “loss of convenience which would flow from the imposition of the point of sale prohibition”. The Tribunal also added that it was this “constituted failure to take into account a relevant consideration” that meant that the Commission would need to revise its plans once more.

However the overhaul of how PPI sales are regulated is still continuing at a rapid pace as complaints from consumer organisations and those who believe they have been mis-sold PPI grow exponentially. This year alone we have already seen the FSA tell banks and other financial institutions to compensate those who may have been mis-sold policies, re-open the 185,000 old complaints that have been dismissed, and stop selling the much criticised single premium PPI, whilst companies offering help and advice to claim back fees spent on mis-sold PPI has practically become an industry in itself.

Referred to as a “protection racket” in some corners of the industry due to abnormally high cost policies being sold to people who can’t actually make a valid claim under the terms of their agreements PPI providers added excess profits of £1.4bn to their coffers in the heady days of 2006 when the Competition Commission first began making enquiries into the sector.

As Martin Lewis of financial advice website moneysaingexpert.com succinctly commented “Bank-based PPI is a near con – it’s hideously over-expensive, billions of pounds of it have been mis-sold, and the sooner it’s cleaned up and cleared out the better.”

At a time when public faith in the entire banking sector is at an all time low how the public will react to this further delay in cleaning up what is a tainted section of both the banking and insurance worlds’ remains to be seen. However, the general consensus amongst financial commentators is again echoed in Mr Lewis’ comments “It’s a shame Barclays has succeeded in using its lawyers to delay the implementation of such an important ruling”

Whether they have stemmed the tide for good, or as Mr Lewis suggests have simply delayed the inevitable is uncertain, but for the time being the Bank’s are refusing to let this go without a fight.

Kris Oldland

——————————————————————————
WARNING DO NOT BUY PPI FROM A BANK – EVER!

Insuranceblogger urges consumers to shop around and buy mortgage protection insurance from independent suppliers after they have researched the market. The point of removing PPI sales from mortgage and loan sales was to stop the consumer from being pressurised into buying overpriced products to secure the loan.

Once again a bank, admittedly not one overly involved in the toxic debt fiasco , but one intricately involved in the collapse of the banking system by it’s failure to step in and rescue Lehman Bros. (until they had collapsed and they cherry picked the best bits!), is allowed to dictate to Parliament and interfere with the due process of consumer law!
Insuranceblogger recommends checking out alternative protection products such as Lifestyle Income Protection Insurance which has wider covers and is not tied to any particular lump sum debt.

Related posts:

1. What a bunch of Bankers! UK Banks challenge PPI ruling
2. Mis-Sold Payment Protection Insurance? Claim It Back Now!
3. Loan Payment Protection Insurance Competition Commission report