Altrincham, Cheshire United Kingdom (PressExposure) February 22, 2012 -- British banks should make plans to cope with as much as £5bn in compensation payouts to customers missold PPI warns PPI Reclaims Company Simple Financial Solutions.
The warning comes as Morgan Stanley, the US financial services group, reports that the Bank of America has put aside £375m to deal with future PPI claims. But economists believe British banks are set to take a much heavier hit.
PPI or Payment Protection Insurance can offer a financial lifeline to those unable to work through illness or redundancy. But after more than a decade of mis-selling, the insurance has become one of the most unpopular financial products on the market. According to the Complaints Commission, customers could have been overcharged by more than £1.4bn a year. The worst case scenario is that, because of a process known as route cause analysis, British banks would take a huge hit due to Payment Protection Insurance claims of around £5bn, the majority of which would be paid by the "big five". These figures are based on just 20% of the 12 million outstanding policies making a claim with half of those being upheld and paying out an average of £2,000.
Of those claims rejected by lenders, the Financial Ombudsman has discovered nine out of ten did have merit and customers should have been refunded and compensated.
However, a spokesperson for PPI Reclaims Company, Simple Financial Solutions, believes the banks have another trick up their sleeves to prevent this from happening.
"The FSA recently introduced route cause analysis to force lenders to compensate those customers caught up in any sales method shown to be lead to mis-selling Payment Protection Insurance. Lenders are required to retroactively analyse customer complaints for instances of bad practice, inform the customer involved and compensate accordingly. Even if the customers are not aware of what has happened to them, lenders would still be required to compensate them."
"However, the banks are now calling for a judicial review into the new FSA regulations. This is guaranteed way for the banks to stop processing new claims, trapping hundreds and thousands of people who have been mis-sold PPI and preventing them from having their claims settled. "
Lenders are no longer able to offer single premium Payment Protection Insurance on unsecured loans and, even though the problems of mis selling are well known there are still continuing issues with how it is sold, especially with credit cards. Recently Which? reported that 13% of the 9.8 million credit card users with insurance policies believed having PPI was either a condition of their application or it would help their chance of being successful. Even worse 28% had no suitability checks completed by the lenders.
"Credit Card Payment Protection Insurance does not give anyone the support they need," says the spokesperson.
"It's the equivalent of modern day snake oil - you think it's doing you some good, that's it's protecting you, but as only a shocking 11% of claims are ever successful it's very unlikely it will ever help you when you need it. The majority of policies are so riddled with exclusions that it makes it almost impossible for consumers to ever make a claim. It's little wonder people are feeling so cheated and submitting PPI claims to their lenders."