Banks may have to pay more PPI redress under agreement with FCA

The headline news to emerge from the Financial Conduct Authority (FCA)’s latest payment protection insurance (PPI) thematic review is that the banks and other firms that sold PPI have reached an agreement with the regulator to look again at some 2.5 million PPI complaints that may have been either rejected unfairly, or where insufficient compensation was paid. This relates to complaints made in 2012 and early 2013 which have not been considered by the Financial Ombudsman Service.

This revelation raises the prospect of the major banks having to increase their PPI provision yet again – Lloyds Banking Group has already set aside a sum in excess of £10 billion. As a whole, the industry has already paid over £16 billion in compensation to affected customers.

In his foreword to the report, the FCA’s director of supervision, Clive Adamson, says that some of the six largest PPI sellers have so far failed to satisfy the regulator that they

“are likely to reliably and consistently deliver fair outcomes to PPI complainants.”

The FCA has now asked an independent external consultant to scrutinise the PPI complaint handling practices of these firms.

The FCA fined Lloyds £4.3 million in February 2013 over its PPI complaint handling practices, and imposed a £113,000 sanction on Co-operative Bank in January of the same year. Now it warns that it may use this power again in the future. The report also says that the FCA expects firms to significantly reduce bonus awards paid to executives who are responsible for failings in this area.

The report also follows up on the 18 medium-sized firms who were audited by the FCA for the September 2013 PPI review. Some of these firms are still failing to satisfy the FCA that their senior management fully understand the issues involved, or that they are sufficiently committed to correcting deficiencies in their complaint handling. Hence, some of these firms can also expect to have their practices be reviewed by an external consultant.

Some two million letters to customers who are likely to have a strong case for mis-selling are still to be sent out by firms. Given that the report says that around 45 million PPI policies were sold, and 70% of PPI complaints to date have been upheld, it can be estimated that around 31.5 million policies were mis-sold. Yet only 13 million complaints have been made to date, suggesting that there are many more people whose claim would be successful were they only to make one.

However, the FCA notes that PPI complaint numbers are steadily falling, and looks forward to the end of the mis-selling saga. It says that its next PPI report, due to be published in 2015, could be its last.

In the final section of the report, the FCA says that it is not minded to accept the proposal of the Parliamentary Committee on Banking Standards that firms are required to write to all customers who have ever been sold PPI inviting them to consider making a complaint. The FCA believes this would be unworkable, and also says it is not yet persuaded to impose a time limit on when a PPI claim can be made.

Martin Wheatley, the FCA’s chief executive officer, said: “Making sure anybody previously mis-sold PPI is treated fairly now, and paid redress where its due, is an important step in rebuilding trust in financial institutions. In around two and a half million complaints this was not necessarily the case so, at our request, firms will be looking at these complaints again. The process is now working well; in just over three years £16bn has been put back into the pocket of the consumer – that is unprecedented. Given the enormity of this exercise it is no surprise that there have been some issues along the way but our approach is delivering a good result for consumers.”