Monday 9 May 2011

PPI: the banks made millions form this rotten product

There was a rare outbreak of common sense infecting the banking industry last week. Lloyds Banking Group, our biggest bank, has run up the white flag and said it won't be pursuing legal action on the issue of payment protection insurance (PPI).


What's more it has set aside a staggeringly large sum – some £3.2bn – to pay compensation to thousands of customers who were mis-sold this duff insurance, designed to cover loan or credit card repayments if you were made redundant or were too ill to work.
The British Bankers' Association has decided not to appeal against the High Court ruling in favour of tougher rules on PPI mis-selling
The banks were trying to overturn a ruling by the Financial Services Authority (FSA) forcing them to review all previous PPI sales, even if there had been no complaint.
The FSA said banks should use current sales' guidelines to determine whether the policy had been mis-sold. So banks would have to check, among other things, whether they had pointed out that the policy was optional and explained key terms and conditions.
Fortunately the court sided with the FSA – and now the other banks, represented by the British Bankers' Association, have followed Lloyds' example and abandoned any appeal against the ruling.
The amount of money set aside by Lloyds shows just how big this problem is. These policies have been mis-sold for years. It's now 10 years since I wrote about a case where Lloyds had sold this insurance alongside a postgraduate studies loan, despite the fact that those not in full-time employment – i.e. students – were specifically excluded from claiming.
      
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Amazingly, the bank refused to pay out or refund premiums when one of its customers was forced to quit her course after being diagnosed with cancer.
Only after this newspaper wrote about the case did it offer redress – but even then it didn't have the courage to talk directly, or apologise, to the family. The first they knew about it was when some cub reporter (me) rang up for a reaction.
What they didn't have to do at the time was check how many other policies were sold alongside these study loans. Now they will and hopefully those who unwittingly bought this insurance should be able to get their money back.
Given the length of time this scandal has dragged on, the millions affected and the cavalier way in which banks have dismissed complaints, I hope this proves to be the final chapter in a very sorry tale. There is one postscript worth noting though.
Lloyds's decision will open the floodgates to a wave of cold calls from claims management firms offering to "win" compensation for anyone who has ever had a loan or credit card. Many will demand upfront, unrefundable fees, and all will take a substantial slice of any redress.
Be wary about using such firms – they won't increase your chances of getting compensation. Consumers need to ensure they don't jump from one raw deal to another.
Don't wait for your bank to call you. Although Lloyds and Santander are now carrying out a systematic review they will only call those likely to have been mis-sold this insurance. Check old credit card and loan statements yourself.
If you have paid for this insurance, log a complaint and force them to pay proper compensation for a rotten product that was badly sold, but has helped the banks make billions

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