A study by the BBC has suggested that people who complained about the sale of credit card payment protection insurance (PPI) could have collectively been deprived of around £1 billion in compensation, as a result of the failure of the providers to consider charges incurred on the account when calculating compensation amounts.

Compensation should involve a refund of the premiums paid and any interest paid on these premiums, plus 8%, as with other forms of PPI. Credit card PPI customers should also receive additional compensation based on the assumption that had they not been paying for PPI, they would have used the same monies to reduce their card balance.

However, the additional issue identified by the BBC is that compensation has not been paid in many cases where the addition of a PPI premium meant that a customer exceeded their borrowing limit. In these circumstances, extra charges would be incurred, and if the PPI was mis-sold, the customer is entitled to compensation for these charges.

The issue is said to concern credit card PPI sold by Lloyds Banking Group, Barclays, MBNA and Capital One. The financial watchdog, the Financial Conduct Authority (FCA), has said it is in discussions with the providers concerned over this issue.

The BBC report highlights the case of Mark Pascoe, who received £5,800 compensation from MBNA in February 2014. However, if the extra charges he incurred had been accounted for, the payout would have been in excess of £13,000. Martin Baker, managing director of Mr Pascoe’s claims management company (CMC) Renaissance Easy Claim, described it as “another way by which the banks and lenders were trying to reduce their compensation bills.”

MBNA responded by saying:

“It is not and never has been our practice to refund these fees.”

They have also asserted that:

“PPI could never cause our customers to be over limit or cause the fee to be applied.”

The credit card issuer added that its methods of calculating PPI compensation had been

“independently reviewed.”

These findings serve as a reminder to customers and their CMCs to check redress calculations on credit card PPI claims to ensure that these charges have been included. A final response letter from a firm should explain the rationale behind the amount of compensation awarded. If there is reason to believe that these charges have not been considered, then the decision can be referred to the independent Financial Ombudsman Service (FOS).
The FOS confirmed to the BBC that these fees should be included in the compensation amount. “If a fee is the result of the mis-sold PPI, it should be given back, and if it’s not included, that would be a mistake,” said Principal Ombudsman Caroline Wayman. Consumer website Moneysavingexpert.com also claims to have received confirmation from the FCA that these charges, plus interest, should be refunded.

Gillian Guy, chief executive of national advice charity Citizens Advice, said:

“Firms should not be short-changing people on their PPI payout. It’s not for banks or credit card companies to pick and choose what they provide compensation for. If people have been mis-sold they deserve a full payout which covers all of their losses. This is yet more evidence of banks and card providers’ utter failure to put things right for PPI customers.”