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An issue that has claimed many headlines over the last 12 months
is payment protection insurance (PPI), a product that has been
widely sold across the financial services industry for many years.
PPI is the most complained about insurance product ever sold in the
UK and financial services companies are setting aside billions to
repay those who were mis sold PPI.
What is PPI? Payment protection insurance (sometimes called
'loan protection') covers loan or debt repayments in the
event of certain problems – for example, if you are
unable to work because of illness or if you are made redundant. How
these policies work and the benefits they offer, vary from
organisation to organisation and from policy to policy. Payment
protection policies are usually sold as part of a deal when
consumers take out a loan, mortgage or credit card.
Why are people complaining? It has come to light that hundreds
of thousands of policies may have been mis-sold to consumers for
lots of different reasons – the two main ones being: 1)
consumers have tried to make use of their policy by claiming on it
and have been turned down, often due to small print they were
unaware of; 2) consumers did not actually know they had taken out
the policy or it was 'forced' on them at the time they took
out the core product, such as a loan or mortgage.
Why is this such big news? Not only do financial services
organisations have to pay back the premiums on mis-sold products
they also need to redress the customer with any necessary interest
forgone. The estimated cost to the industry currently standards at
Ł6bn and is rising.
Also, claims management companies (CMCs) are providing advice
and servicing consumers' complaints on their behalf. There are
now around 800 CMCs which advertise strongly to complete the
customer's complaints for them, often taking 25% or more from
the average Ł3,000 payout. CMCs have received a lot of bad
press recently. Which? provides the following advice about CMCs:
"If you have a complaint against a financial services company
then there is no need to spend money employing a claims handler.
There are already simple processes in place for resolving
complaints consumers can use themselves without the help of a
claims company and the often high upfront fees they
charge."
What are the implications of PPI for financial services
organisations? Many organisations have had to respond to the deluge
in volumes of complaints by offering consumers who took out a
policy, a payment regardless of whether or not they were mis-sold.
The cost of administering and processing complaints is spiralling
as volumes of complaints raise. The CEO of Lloyds stated recently
that claims management companies submitted 45% of the claims the
bank received in February and March. Of the claims submitted by
these firms, 25% were from people without Lloyds products. All of
these complaints require administration and processing, which is an
extremely costly business and considered a financial drain for
many.
And my moral question to you readers... if you took out PPI
aware of the terms of the policy, would you complain anyway,
knowing that you could receive compensation?
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Risk and Regulation Monthly provides a summary of the key International, European and UK regulatory developments and pertinent regulatory activity affecting the Financial Services industry.
The FSA has been in discussions with the banks with regard to them providing appropriate redress for affected customers in relation to the mis-selling of payment protection insurance.
The Court of Justice of the European Union has ruled that VAT on investment management fees paid by the trustees of a UK defined benefit pension scheme is irrecoverable under a VAT exemption for special investment contained in two EU Directives.
A number of summaries regarding the most recent updates as reported by the the FSA, the Financial Conduct Authority, the Prudential Regulatory Authority, the UKLA, the Upper Tribunal, the Financial Ombudsman Service and the London Stock Exchange.
A list of summaries of the most recent developments as reported by the FCA, PRA, UKLA, the Upper Tribunal, the Financial Ombudsman Service and the LSE.
A summary of the most recent developments as reported by the FCA, the PRA, the UKLA, the Upper Tribunal, the Financial Ombudsman Service and the London Stock Exchange.
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