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BLOG: PPI – prepare for the long-haul

Steve Bloor
Written By:
Steve Bloor

Steve Bloor from financial complaints firm Open Resolution on why the payment protection insurance mis-selling debate looks set to rumble on…

This week the Financial Ombudsman published updated tables showing the number of complaints it received in the second half of last year and they make pretty shocking reading for the banks.

Over 280,000 complaints were received in the period and 212,000 of these related to payment protection insurance (PPI). In the previous half year the number of PPI complaints referred to the Ombudsman was 85,000 so there has been a 2.5x increase in the number of PPI mis-selling cases rejected by the banks and referred to the Ombudsman.

Yet the Ombudsman continues to uphold up to 97% (in the case of Lloyds Bank subsidiary Black Horse) of PPI complaints in favour of the customer.

There was a 344% increase in the number of PPI cases referred to the Ombudsman relating to Lloyds bank and an even more eye watering 731% increase in cases related to Lloyds subsidiary Bank of Scotland.

It is now clear for all to see that the banks, and Lloyds in particular, are seeking to delay and deter PPI complaints by arbitrarily rejecting them and making customers pursue their cases via the Ombudsman. And with such a massive increase in cases referred to the Ombudsman it seems inevitable that current backlogs of around a year or more will extend to over two years.

In the meantime customers who have been mis-sold PPI and whose loans are still live will be expected to continue to pay for that product. Many are struggling and if they fail to maintain the repayments it could result in a black mark being put on their credit file, which could increase their cost of borrowing in the future, or, in more extreme cases, the bank taking recovery action which could lead to them losing their homes. This is truly desperate.

So, what is the reaction of the Financial Services Authority (FSA) to what the banks are doing? Well you only have to look at the latest statistics published by the FSA of the total amount of PPI compensation paid by the banks. This dropped yet again in December to £360m and has been on an inexorably downward trend since the middle of last year. In the first half of last year the banks paid out £3.3bn in PPI compensation. In the second half this dropped to £2.9bn. So while volumes of PPI complaints increase, the rate of settlement is decreasing and, so far, there has been a deathly silence from FSA.

More worrying is that the situation could get even worse. Shortly the Bank of England’s Financial Policy Committee is due to announce the amount of additional capital banks will have to raise to protect themselves against future losses, and paying out vast sums in compensation for past mis-deeds doesn’t help banks’ capital positions. So once again the man in the street is effectively shouldering the burden of the banks’ (and regulator’s) failures. Was it ever thus!

Steve Bloor is managing director of www.openresolution.co.uk , specialists in resolving consumer disputes related to financial products and services.