Simon Read: Lenders must pay for useless insurance

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The Independent Online

The much-maligned payment protection insurance came under scrutiny again this week after credit card company MBNA was told to hand back £2,520 it had taken in premiums from a 49-year-old Sunderland woman. A judge at Newcastle County Court rendered the eight-year-old policy invalid after ruling that the lender had failed to disclose any commission it earned on the insurance.

Now, I don't know the ins and outs of this particular case as there appear to have been several twists and turns, with MBNA even suing its customer to recover an £8,000 debt on the Sunderland AFC branded credit card she had taken out. Also I'm dubious about the claims companies that encourage people to believe they can wriggle out of their debts through some legal loophole or other.

But it strikes me that this particular case is a victory to be cherished. Why? Because, potentially, the judge has opened the door for other people to claim back useless premiums on expensive policies that they did not really need. Payment protection insurance (PPI) has been flogged alongside credit cards, loans and other finance agreements for years. After warnings from this paper among others, the City watchdog – the Financial Services Authority – finally took action against the widespread mis-selling of PPI a couple of years ago and has now fined 22 firms a combined £11.8m for mis-selling the cover. In fact, Alliance & Leicester – now part of Santander – was fined a massive £7m in October 2008 for serious failings in its telephone PPI sales. The FSA has also banned banks from selling PPI cover alongside other financial products from next year. Despite that, the FSA has been forced to get even tougher this week and has forced firms to reopen some 185,000 previously rejected PPI complaints and reassess them.

It has also published new guidance which it hopes will ensure PPI complaints are handled properly and lead to fair redressment. "This is the last chance for the industry," stormed Jon Pain of the FSA. "Consumers should not be pressured or deceived into buying PPI."

The watchdog took action after figures from the Financial Ombudsman Service revealed that, on average, firms rejected around three-fifths of the PPI complaints they received, with some firms rejecting nearly all. Of the complaints that go on to the FOS, more than four-fifths have been overturned and ruled in the consumer's favour.

The figures tell their own sad story, but it's shocking that after all the bad publicity and fines that so many financial firms still haven't got their act together. I can understand their concern at the official crackdown as PPI added up to massive extra profits for those companies which could flog the cover to their customers.

But it's long been time to bite the bullet and accept that the gravy train has closed. And part of that process means accepting and paying the penalty for their misbehaviour in the past. Putting the PPI blight behind us is long overdue.

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