A Costly Exercise For The Banks

PUBLISHED: 10:51 22 April 2011

Kevin Mountford

Kevin Mountford

Archant

The banks had said it was unfair that the new regulations were to be applied retrospectively to complaints relating to policies sold before last December. But the dismissal of their appeal means there could be a new flood of complaints from people who think they were mis-sold PPI in the past.

The banks have taken another hit over the PPI scandal, but did they deserve it? Asks

FOR those who have been unaffected by the payment protection insurance (PPI) scandal, for that is what it is, the subject must not only be uninteresting, but positively confusing.

So before launching into a look at the latest news - which involves the high-street banks having their appeal against new PPI regulations thrown out by the High Court - here are a couple of basics.

PPI can be a good product. It is designed to cover debt repayments (for example for a loan, mortgage, credit card or store card) if the policyholder is unable to work because of an accident, illness or job loss. It can provide peace of mind at the hardest of times.

Sold at the right time and in the right context, it can be extremely important. And here is the crux - badly sold, or indeed mis-sold, PPI can be a dreadful product. If it doesn’t pay out when someone is expecting it to, they are caught in a trap of losing an income and then the double whammy of not being able to claim what they expected. And so to where the situation stands now.

The British Bankers’ Association (BBA) had taken action against the Financial Services Authority and the Financial Ombudsman over new rules, which came into force last December.

The banks had said it was unfair that the new regulations were to be applied retrospectively to complaints relating to policies sold before last December. But the dismissal of their appeal means there could be a new flood of complaints from people who think they were mis-sold PPI in the past.

There have been more than 1.5 million complaints made about PPI since the FSA took over its regulation in 2005. The watchdog said the providers had rejected an average of 60pc of the complaints made to them, and some rejected almost all complaints. However, the vast majority of complaints then referred to the ombudsman had been found in consumers’ favour.

Oliver Morgans, financial services expert at Consumer Focus reckoned the judgement was a “huge win” for the millions of people mis-sold PPI.

“It has taken years of the banks being dragged kicking and screaming, but they are finally being forced to do the right thing by their customers.

“PPI is a clear example of everything that is wrong with the banking sector.”

And Kevin Mountford, head of banking at Moneysupermarket.com, said: “No doubt this is going to be a costly exercise for the banks. However, it is likely that in the long term it will still be consumers who suffer the most, as any losses by the banks will likely result in the form of higher costs or fees.”

But he also reminded people of the benefits of PPI: “When sold properly, PPI is an important product that does what it is supposed to do, it protects consumers.

“There have been genuine instances where consumers have been able to rely on the PPI cover to protect their credit card and loan payments.”

Many bad decisions have been made, but PPI still has a purpose.

For more personal-finance news and views, visit www.mymoney24.co.uk

Caption: Kevin Mountford: “A costly exercise for the banks.”

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