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The Actuary The magazine of the Institute & Faculty of Actuaries
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Banking industry to compensate for mis-sold PPI policies

Following an April 2011 High Court ruling, banks need to go back over all their past payment protection insurance (PPI) sales to see if the customers have a claim for mis-selling. This includes sales for which complaints had been rejected or never lodged and the investigation is a requirement of the Financial Services Authority (FSA). The British Bankers’ Association lost a court challenge in which they opposed the new ruling. They have now announced that they are not appealing.

Background to mis-selling of PPI
PPI covers loan repayments if someone falls ill or loses their job. Some policies were mis-sold and compensation payments have been made. Examples of such mis-selling include selling to self-employed people who cannot claim, telling customers incorrectly that purchasing PPI is a requirement for taking out a loan, or selling it to consumers who are unaware they are covered.

Impact on banks
Banks have to increase their provisions in order to pay compensation. Barclays set aside £1bn to pay compensation; HSBC set aside £269m; and RBS set aside £850m. This is in addition to the £100m it has already paid and £100m it has already set as provisions. Lloyds Banking Group made a £3.2bn provision for possible claims. Nationwide Building Society distanced itself from the banks that tried to challenge the FSA. It continued to process new PPI complaints while the High Court case was being heard.

The FSA’s response
The FSA welcomed the British Bankers’ Association’s decision to accept the High Court’s ruling. This is seen as a turning point for an issue that has seen more than 1.5 million complaints since the FSA began regulating PPI sales in January 2005.

Only the affected customers will hear from their bank. Any customer with a concern is encouraged by the FSA to make a complaint rather than wait for the bank to consider the case. Only sales made since January 2005 are enforceable under FSA rules. However, customers of PPI policies sold prior to this date may still complain to their bank.