UK banks in mass payout for mis-selling PPI

| April 20, 2011
UK banks in mass payout for mis-selling PPI

UK banks are set to lose billions following a High Court ruling over Payment Protection Insurance (PPI).

The controversial insurance has been a hot topic for sometime now and the Financial Services Authority introduced a review of the insurance after millions of policies were mis-sold and thousands of complaints were received.

Under a PPI policy, an agreed sum of money is paid out each month to fully cover, or cover a percentage of the payment due on your mortgage or loan if you are unable to work, as a result of becoming unemployed or sick.

However, it was established last year that financial providers commonly boosted their profits by incorporating the cost of a one-off PPI premium into a loan.

Furthermore, many complaints were received after borrowers with PPI found themselves paying extra interest, while a significant number complained that they were unaware of having taken out the insurance policy.

As a result of the High Court ruling, banks will have to look at previous sales of PPI – regardless of whether customers complained or not.

Many believe banks could be forced to pay out more than £4 billion.

However, the British Bankers’ Association (BBA) was said to be “disappointed” by the outcome but the banks have 21 days to appeal.

Consumer group Which? described the ruling as “a huge victory for consumers”.

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Comments (2)

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  1. susan walsh says:

    i was missold a ppi.made a claim recieved a payout.now 18 month down the line i have wrote a letter to the same credit card as they carried on with the ppi from my claim.in the first claim i was never asked to take it out it was just put on my card.and obviously it still on my card to make a second claim.rbs

  2. We have dealt with clients in wheelchairs that have been sold sickness insurance that could never been claimed on due to obvious health issues. We have dealt with policies sold to pensioners, housewives and students who could never claim on loss of employment as they were never employed. We have dealt with Russian Builders, Indian Cooks and African Taxi Drivers who could hardly speak English and could never claim as they were self employed. We have dealt with Nurses working for the NHS, civil servants, policeman, firemen and armed forces personnel who could never claim on policies due to the fact that they were fully covered from their work sickness insurance.

    The banks who sold these policies had a massive incentive to sell them due to the enormous commissions involved (usually 60% of the total cost of the policy). In addition on single premium loans they not only gained the loan commission they also lent the money to purchase the policy in the first place. So that on lending £5,000 to purchase a policy at say interest of 20% pa with 60% of the cost of the policy refunded as commission they bank effectively earned 50% interest on the net cost of the loan.

    The banks have ignored their own regulators guidelines to refund this money. They have challenged the regulators instructions on best practice and lost in court and now there is no doubt they will appeal this judgement in the cynical knowledge that by delaying the verdict another 18 months they will save hundreds of millions of pounds in people giving up on their claim and the fact that they are able to destroy their financial records older than 6 years old thus preventing claims on their older policies