PPI claimants claw back £215m in 6 months
THE first half of 2011 saw the financial industry fork out an unprecedented £215m in compensation to customers mis-sold payment protection insurance (PPI).
The latest Financial Services Authority (FSA) figures show a spike in returns for disgruntled PPI consumers in May and June.
More than £102m was returned in just those two months which coincided with the British Bankers' Association's (BBA) failure to convince the High Court that PPI compensation rules shouldn't be applied retrospectively.
Margaret Cole, interim managing director of the FSA's conduct business unit, said: "The treatment of PPI complainants has left an indelible stain on the financial industry's record.
"By releasing these figures we're providing a useful measure of firms' progress that can be tracked on an ongoing basis."
Measuring the cost of PPI
Just 16 firms represent 92% of all PPI complaints made.
Each firm would have been hit hard by individual complaints about mis-sold policies but, as a response to widespread confusion about PPI, the FSA's guidance asks firms to take a broad brush response: compensating all consumers who had been sold PPI in a particular way.
It's those rules which will really knock the banks out financially.
How much do banks owe?
Lloyds Banking Group has set aside £3.2 billion to cover potential payouts, Barclays is sitting on £1bn while Royal Bank of Scotland has a kitty amounting to £850 million.
Santander, the only big bank not to put a freeze on consumer PPI claims pending the outcome of a judicial review into the rules the FSA set down on complaints handing, has already started paying out £538 million to consumers mis-sold PPI.
Santander's results for the first half of the year reassured investors that it had maintained solid profits.
That is, if you didn't take the "extraordinary provision for PPI" into account.
Despite the widespread belief that Santander was somewhat sheltered from the PPI crisis, the bank has had to pay out a little more than HSBC, which has set aside £270 million to compensate their customers.
Here are those eye popping figures again:
It's interesting, although not entirely surprising, to note that two companies hit hardest by the mis-selling scandal were those fighting regulator's attempts to curb sales of insurance products right from the very beginning.
In May 2010, for example, when the Competition Commission banned the sale of PPI products alongside borrowing, its decision was severely delayed after a legal challenge to the ruling was made by Barclays and supported by Lloyds Group.
How does that compare?
In terms of compensation, the mis-selling of PPI dwarfs other nefarious financial world blunders.
For example, just £2.7bn was paid out to the victims of endowment mis-selling and, more recently, just £4.5bn was paid out to people mis-sold personal pensions.
It's estimated that victims of PPI mis-selling could be due approximately £9bn.
The cost for consumers
On an individual level, PPI has cost customers who took out loans or credit cards hundreds or even thousands of pounds.
"We remain 100% committed to ensuring that where consumers were mis-sold PPI they will receive the appropriate redress from firms and we are monitoring firms' progress to ensure this is done properly," said an FSA spokesperson recently.
"Where we find that this not to be the case, we are not afraid to take tough action."
Problems with PPI arose in the way the product was 'sold'.
In some cases, PPI was included with the loan without the customer being told that they would be paying premiums that amounted to between 15 and 30% of the balance. Other customers were told that PPI was compulsory.
Some customers were sold the insurance even though they weren't eligible to make a claim - these include the self employed, unemployed, retired or those with pre-existing conditions.
These cases were some of the first to highlight the scandal.
According to the ombudsman, the number of complaints it received regarding PPI in the 2010-2011 financial year was the highest number ever recorded about a single financial product.
Be warned though - the ombudsman has said that banks might take "months, if not years" to deal with their backlog of complaints.