Banks face £33billion bill in new mis-selling scandal
BRITAIN’S biggest banks face a compensation bill of up to £33billion for failing to disclose the lucrative commission payments they received to sell PPI policies.
Fears of yet another financial scandal have emerged after a customer who bought payment protection insurance almost a decade ago won a landmark ruling in the Supreme Court.
Consumer campaigners said last night that banks could be deluged with new complaints, while millions of customers who have seen their PPI complaint rejected may now be owed compensation.
Susan Plevin, a widowed college lecturer, was not told that almost £4,200 of the £5,780 she paid out in PPI premiums was commission paid to the lender, Paragon Financial Services, and the broker that sold her the £34,000 loan.
The court ruled in November that this breached the 1974 Consumer Credit Act.
Britain’s biggest banks, which pocketed big commissions for selling PPI policies through branches or paid brokers to sell
‘Racketeering for decades’
their products, are braced for another huge compensation bill.
A recent study by Autonomous Research, chaired by former City minister Lord Myners, warned that they could have to pay out another £33billion to customers if the court ruling was applied across the industry.
It said: ‘In essence this ruling appears to open up a new angle for PPI mis- selling claims, based on commission payment.
‘If applied to other products (for example store cards and car finance), this case could lead to a whole new wave of consumer claims for the banks, with a bill that could be even higher than the PPI tally.’
Almost £27billion has been set aside so far by the high street giants for PPI – making it the most expensive mis-selling scandal to ever hit the UK.
City watchdog the Financial Conduct Authority has said it is reviewing the implications of the case and is expected to make an announcement next month.
The UK’s ‘ big four’ lenders – Barclays, HSBC, Royal Bank of Scotland and Lloyds – have all warned shareholders and referred to the legal case in their latest financial results. HSBC said there is a ‘high degree of uncertainty as to the eventual costs of redress’, while RBS, Lloyds and Barclays warned that the impact could be ‘material’.
Lloyds, which owns Halifax and Bank of Scotland, could face the biggest hit. The state-backed giant has set aside more than £13billion so far to compensate customers for PPI – far more than anyone else.
Martin Lewis, founder of Money-Savings-Expert said: ‘There are hundreds of thousands, if not millions of people who have already complained about PPI and been rejected who may actually be due their money back. This case adds to that – with even more people brought into the mis-selling net.’
Ukip MP Douglas Carswell said: ‘The behaviour of banks is shocking. They give capitalism a bad name. They have behaved like a cartel guilty of racketeering at the expense of the customer for decades.’
Banks and other financial servi ces companies sold around 45million PPI policies between 1990 and 2010. They were sold alongside loans and credit cards and were meant to be a safety net for customers who lost their jobs or became too ill to work.
But because it was so lucrative for banks, PPI was routinely sold to customers who would never have been able to claim on the insurance, such as the elderly and the self-employed.
Often pushy salesmen sold the insurance as a condition of the loan or added it to the cost of the loan without the customer knowing. Regulators estimated that banks raked in between £2.2billion and £2.6 billion a year from PPI, and could earn £1,200 from a policy that cost £20 to provide.
One banking source said banks have been consulting lawyers to see whether the Plevin v Paragon Personal Finance case sets a legal precedent.
He added that lenders are likely to challenge any decision by the regulator to force them to pay out more compensation if commission payments were not disclosed to customers.
Banks fear claims management firms will see this as another money-making opportunity and bombard customers with more spam text messages encouraging them to seek compensation.
Mark Garnier, a Conservative member of the Treasury Select Committee, said another huge compensation bill would damage the economy.
‘This is quite remarkable and demonstrates yet again just how appallingly badly the banks behaved,’ he said. ‘But there comes a point when all these fines and compensation payouts will seriously affect banks’ ability to lend.’
‘Money-making opportunity’
SEVEN years have passed since the rapacious greed of the banks triggered the financial crash – but still the revelations keep on coming.
As we report today, the latest racket concerns a failure to inform customers purchasing payment protection insurance (PPI) that a large chunk of the cost of the policy was commission paid by the banks to brokers.
This latest mis-selling of PPI (which in many cases was worthless in any event) is likely to land the banks with another multi-billion pound compensation bill.
It also reaffirms the overwhelming need for a judge-led inquiry into the entire banking sector, to get to the bottom of every last act of dishonesty and criminality.