Banks Defeated in PPI Ruling

Banks Defeated in PPI Ruling

by David Redmond on 12 May, 2011

Consumers were victorious this week as banks admitted defeat against the High Court ruling over payment protection insurance (PPI) compensation.

The British Bankers Association (BBA), the  trade body representing over 200 banks, withdrew their challenge to the High Court’s judicial review on mis-sold PPI as it was revealed that an estimated £9 billion in compensation may be due to victims of the PPI scandal.

Lloyds Banking Group pulled out last week with the announcement it would set aside a PPI compensation pot to the tune of £3.2 billion. Barclays Bank followed suit on Tuesday, admitting defeat with the announcement of a £1bn compensation package – more banks are expected to formally announce retraction of the hold on PPI complaints and outline compensation arrangements for customers in the following days. Santander is the only exception in the case, as they are dealing with their PPI compensation outside of the main BBA case.

For consumer, this means the almost unilateral freeze on customer complaints relating to PPI will now be lifted – the majority of banks have refused to handle any complaints since October 2010, when the BBA announced they would challenge the Financial Services Authority (FSA) rules which came into force in December 2010. The FSA outlined principles and guidance on how to handle mis-sold PPI, instructing banks to review all sales of PPI, as well as investigating systemic problems of mis-selling (known as root-cause analysis) and offer all customers the opportunity to reclaim their money. Since the BBA began its legal challenge, the Financial Ombudsman Service (FOS) has received up to 5000 new PPI cases every week. Natalie Ceeney of the FOS stated ‘The lack of cooperation from some financial businesses has made it difficult to progress PPI cases over this period. However, the clear-cut judgment means that banks and other businesses should now be in the position to deal promptly, efficiently and fairly with their customers’ PPI complaints.’

It is worth noting that despite the lifting of this ban and the ruling that banks must contact all those sold PPI or risk enforcement action, customers should not expect banks to be forthcoming and individuals should continue to lodge complaints.

Banks mis-sold PPI indiscriminately for years, without adequate explanation and under the premise that it would cover loan or credit card payments if you found yourself unable to work. The worst examples of this saw lenders deceiving customers by either adding PPI without notice or by stating PPI was a compulsory condition to the loan itself.

Victories over the banks, first in bank and credit card charges, and now over the scandal of PPI, will be a welcome boost to the confidence of consumers, especially as we enter this age of austerity.

About the Author

David Redmond

David Redmond is a Partner of Don Gilliard Finance Group. He is a fee-only, independent financial advisor and financial planner. For over 15 years, he has been helping individual investors and their families realize their investment goals.