Lloyds shock decision to set aside £3.2bn to refund customers who were mis-sold PPI was announced following the court ruling that customers could claim refunds on PPI policies dating back many years. This was expected to allow 3 million people to make claims totalling £4.5bn, but it now appears the final bill could be twice as large.
PPI policies have been sold alongside mortgages, loans and credit cards since the 1990s. They were meant to repay people’s borrowings if their income fell because they became ill or lost their jobs.
Critics say the banking industry began aggressively selling PPI to customers after realising that the policies were highly profitable. Barclays and HBOS, the latter now owned by Lloyds, were both shown to be making huge profits from PPI, prompting Vince Cable (then Liberal Democrat Treasury spokesman) to demand an investigation into “inflated premiums and anti-competitive behaviour”. The following year, Citizens Advice intensified the pressure with an investigation that labelled PPI a “protection racket”.
The charge sheet against PPI was fourfold. It was claimed that it was:
• Expensive – with premiums often adding 20% to the cost of a loan, and in the worst cases over 50%.
• Ineffective – structured to limit the chances of a payout to someone who was genuinely ill.
• Mis-sold – without the customers knowledge, or sold as “essential”, or sold to people such as the self-employed who would never be able to claim.
• Inefficient – with claimants facing lengthy delays or complicated claims procedures.
The Financial Services Authority (FSA) brought in a new regime for PPI sales. It stated:
• PPI could not be sold until at least seven days after the loan was agreed.
• Borrowers must be given a personalised quote, detailing costs and cover.
• Customers had to be told in writing that PPI was an optional extra.
• PPI sellers had to state how many customers were successful in claiming on their policies.
The banking industry argued that it was unfair to expect it to impose these new standards retrospectively. The issue came to court in January, when the British Banking Association (BBA) launched a judicial review in the hope of establishing this point, but in April it suffered a landmark defeat at the high court.
The FSA had previously estimated that around 3 million people could be eligible for PPI refunds, worth a total of £4.5bn. Lloyds held around a third of the PPI market, followed by Royal Bank of Scotland with 18%. The size of Lloyds’s provision suggests that the total PPI bill could now be close to £10bn, unless new boss António Horta-Osório has taken an unduly conservative view. Analysts at Deutsche Bank estimated on Thursday that the total industry cost would be £8bn.
Sally Bowyer, Managing Director of leading financial claims company, Brunel Franklin, said that the amount of people who have currently lodged an application for a PPI refund is the tip of the iceberg. “We are seeing steady growth in PPI refunds and the trend is set to continue,” said Sally. What we know is that many millions of policies are in existence and it appears that a large proportion may have been mis-sold. Therefore it is imperative that people check the small print of their loan and other credit agreements, to see if they unknowingly have PPI.”
Learn more about PPI refunds and find out if you could apply for a refund today! Visit the website www.brunelfranklin.com or call Brunel Franklin, free, on 0800 051 54 51.