Banks face mass legal action over loan insurance policies
Wednesday, 7 May 2008
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Consumers mis-sold loan protection insurance will be asked to join a class action case which could force compensation payouts worth more than £300m and a rash of other claims against high street banks.
The City law firm Clyde & Co is seeking to hear from 163,000 people who have been inappropriately sold personal payment protection (PPI) for loans by HFC Bank, a sub-prime lender owned by the high street giant HSBC.
If the action is successful, Clyde & Co will consider bringing claims against other financial providers found guilty of mis-selling PPI, which is fast becoming one of the biggest scandals in the personal finance industry. Although protection policies can help people who fall ill or lose their jobs, up to half of the 20 million policies in force are believed to have been mis-sold, making the amount reclaimable £10bn.
Many policy-holders were wrongly told by commission-hungry salespeople that loans would not be granted without insurance, or were not told they could never have claimed because they were self-employed or had a medical problem.
The Financial Services Authority (FSA) has so far fined 12 companies for mis-selling PPI, with the largest penalty, £1m, levied on HFC Bank. Between January 2005 and May 2007, staff at HFC's 136 branches failed to ensure that the policies were sold appropriately, and did not have any system in place for monitoring their sale.
Most of the 163,000 policies were for unsecured loans, with PPI adding an average of £2,000 to the cost of the borrowing.
Clyde & Co said it needed a minimum of around 500 customers to start an action. If all the customers affected came forward the compensation being sought would be £326m.
The company's lawyers are concentrating on the period covered by the FSA, but will consider taking on cases from the 1990s providing the final payments were within the past six years, the statute of limitation. "It could be more extensive because the FSA investigated transactions over a two-year period. It doesn't mean to say that people who bought PPI from HFC before, say five years ago, would not have been missold," said Julian Connerty, the partner heading the action.
The case may be fought on a no win, no fee basis or be underwritten by a third party such as the German insurer Allianz, which is thought to be considering funding the action in return for a share of the compensation. The share of compensation taken by a third party is typically 20 per cent, but could be as high as 50 per cent.
Mr Connerty believed there was a good chance that HFC would settle.
Which? advised people to seek refunds from the Financial Ombudsman Service, which is free. "If they join the class action, they may not get the full amount," said a spokesman for the consumer group.
Around 20 per cent of PPI premiums are paid back to policy-holders compared with 50 per cent for household insurance and 80 per cent for motor policies.
HFC Bank made no comment yesterday.
Clyde & Co may be contacted on 0207 623 1244
