15Jul

April 2014 saw another milestone in the payment protection insurance (PPI) mis-selling saga, as the total compensation paid to victims of the scandal passed £15.1 billion.

The regulator, the Financial Conduct Authority (FCA), continues to publish monthly figures for the amounts of PPI compensation paid by the 24 firms who account for 96% of complaints about the product. The latest available figures run to April 2014, and in that month £410.3 million was paid in compensation. This is the highest monthly figure to date in 2014, but the overall trend is downwards – the highest monthly amount was the £735.3 million paid in May 2012, and the highest in 2013 was £528 million, in July.

This trend corroborates figures from both the FCA and the Financial Ombudsman Service (FOS), which acts as an independent arbitrator on financial complaints, with these organisations reporting significant falls in PPI complaint numbers over the last 12 months or so.

Some previous estimates suggested that the industry’s final PPI compensation bill could be as much as £40 billion, but with numbers now tailing off, it appears that a figure closer to £20 billion might be more realistic.

Complaint numbers are inevitably falling, as it is now six years or more since most of the mis-sold policies came into force.  However, as the FOS will accept complaints until ‘three years from when the consumer knew, or could reasonably have known, they had cause to complain’, PPI complaints can certainly still be made. Many PPI policyholders did not realise just how unsuitable their insurance was, and in some cases were unaware they even had the cover, so it is considered that these customers will meet the above criterion.

In January 2013, the trade association the British Bankers Association suggested a time limit on when a PPI complaint could be brought, but in February 2014 the FCA said it was not convinced that this would be in the interests of consumers.

PPI is quite simply the most widely mis-sold financial product ever. It is designed to protect loan repayments should a borrower suffer accident, sickness or unemployment, but around seven million consumers have submitted complaints about the sale of the product, and a significant majority of these have ultimately been successful. The UK’s financial institutions have been forced to set aside massive sums in order to pay compensation to affected customers – £9.8 billion in the case of Lloyds Banking Group alone. The saga has put massive strain on the FOS, who saw their annual complaints workload increase more than tenfold between 2009 and 2013, almost solely due to PPI grievances.

The reasons why PPI may have been mis-sold are varied. Some customers were sold PPI they were unlikely to be able to claim on due to their employment status or medical history. Sometimes PPI was sold without the firm checking that the customer was eligible, or whether they already had adequate insurance. Highly pressurised, target-driven sales cultures were commonplace, and significant numbers of policies were added to customers’ loans without their knowledge or consent.