Julian Knight: Ruling on PPI drags banks back into society
Sunday 24 April 2011
The result of last week's judicial review to order lenders to put right the wrong of massive and systemic mis-selling of payment protection insurance is not just a victory for consumers but for society as a whole.
It is a statement to the banks from the courts that they are part of our society and accountable to it rather than above it – they are not a special case because of their money, power and international status. It's a minor victory set against three years of the banks sticking two fingers up at us all over bail outs, bonuses and inflated charges but it's a victory all the same.
However, if you're one of the three million people potentially affected by this mis-selling I wouldn't hold your breath waiting for what was wrong to be put right. The Judicial Review, although binding on lower courts, can still be appealed and if you cast your mind back to November 2009, you'll remember that the Supreme Court overturned High Court ruling and found that banks could continue to levy unauthorised overdraft fees. A result which shocked consumer groups – and nearly all the banks.
But this time there are some differences. In effect, the dispute over charges lay in contract law. The argument was whether the fees imposed on people who went into unauthorised overdraft was an illegal penalty for breaking a contract or a fee for a service – keeping the customers line of credit open. The Supreme Court said they were the latter.
This time around, though, the banks are far more bang to rights. From the outset, they sold millions of PPI policies to people who simply didn't need them or ask for them and who could never claim from them. I remember taking out a personal loan to buy a car about a decade ago with Alliance & Leicester (now part of Santander). I told them I didn't want their PPI yet all down the line they quoted repayments with PPI instead of without and when the documentation arrived, there in black and white was an insurance I had specifically said I didn't want. I called them and shock, horror there had been an "administrative error" and PPI was taken off the loan amount. But if I hadn't been aware I would have been among the three million people mis-sold.
Yet will the banks come quietly following the Judicial Review? Not to judge by recent history. And this time they are emboldened by their earlier victory over bank charges. Take for instance their approach to complaints already in. Most seem to have used the fact that there is legal action ongoing as a way to put mis-selling complaints on ice. They did a similar thing during the revolt over bank charges but that was with the express permission of the regulator, the Financial Services Authority. This time around, the FSA has told the banks that there should be no moratorium on complaints but it has been ignored.
And when you look at the foundation of the banks' legal case it is flimsy in the extreme. They argue that the FSA was wrong in applying rules and standards of behaviour to previous PPI sales – note they don't actually deny that they have mis-sold. No, it's a technical argument and basically an attack on our right as a society to govern the banks' behaviour.
If a financial firm behaves to the detriment of consumers, it shouldn't matter a jot when the act was committed; what matters is that the act was committed at all. It's well and truly time the banks faced up to their responsibilities over this and did what is right, go over their books and where there has been mis-selling, put it right.
Lengthening pensions queue
Last month, another 30 pension schemes fell under the umbrella of the pension protection fund. There are now 187,000 people – including yours truly – waiting to see if a scheme they are a member of will also be brought into the PPF.
I have had all sorts of assurances that the lifeboat fund is viable and the demographic calculations it's based on are sound, but it could be its existence is acting as an impetus for schemes to fold. It provides a last resort which is perhaps a touch too easy for scheme sponsors (employers) to take.
In my case, a previous employer went into administration but promptly came back out of it – without the cumbersome and expensive final-salary pension scheme. The regulator was in effect told "take the scheme off our hands or we close and hundreds of employees will be thrown on the dole".
OK, checks are made by the pensions regulator to ensure the PPF isn't used as a dumping ground for scheme sponsors looking to get rid of an expense.
Although politicians deny it, the PPF is all about managing an orderly wind-down of private-sector final-salary pension schemes. Let's hope the actuaries have got the numbers right and there is enough money for the PPF to pay what it has promised.
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