PPI: £10bn – cost of the biggest scandal ever

As the reparation pot swells, Chiara Cavaglieri reports on how to make your own claim

The endemic mis-selling of payment protection insurance is on course to be the costliest financial scandal in British financial history. The cost to the banks is approaching £10bn and rising. This week, HSBC said they will put up a further £340m and Royal Bank of Scotland £135m, following Lloyds, who increased their claims pot to £4.3bn last week. The five largest banks (HSBC, Lloyds, Barclays, RBS, and Santander) make up the bulk of this £10bn with a combined compensation fund of £8.8bn.

"The latest figures from the banks show that PPI is on course to become the biggest consumer financial scandal of all time, exceeding pensions mis-selling and the endowment mortgage scandal," says Which? chief executive Peter Vicary-Smith.

By the end of May 2012, £4.8bn had been paid out by the banks for PPI claims, so there is still around £5bn to give back, but if you were mis-sold a policy, you need to know the best route for getting redress. Claims management companies (CMCs) say they take the pain out of making a claim, but in reality, they will take a big cut of your money for something you can do yourself for free. Many firms are also cold calling, charging fees from the off and using confusing terms and conditions. But some do maintain that they adhere to a code of conduct and do not charge any upfront fees at all, with no cost if they fail to get compensation.

"Consumers have the right to claim back what is owed to them, and as an industry it is important that our services are as transparent as possible," says Ryan Horne, the managing director of CMC iSmart.

However, there is no proof that these companies offer a more successful route when complaining to your bank. Similarly, the Financial Ombudsmen Service (FOS) has continually insisted that using one will have no impact on their decisions, and FOS has forecast that in this financial year around £75m will needlessly end up in the pockets of CMCs.

The banks seem keen to highlight the increasing number of false claims that they receive, with the likes of Lloyds saying it is employing 1,000 staff purely to tackle bogus claims. But the FOS rejected only 2.5 per cent of the total number of complaints last year, and in a quarter of the PPI complaints where a bank had said no policy existed, their investigations subsequently revealed that a policy was sold after all.

"Increasing numbers of people are realising they may have been sold a PPI policy without their being aware of it, when they took out loans or credit cards. So it's inevitable that banks will need to gear up to deal with more inquiries from people legitimately asking if they were sold PPI in this way or not," says Natalie Ceeney, the chief ombudsman at the FOS.

PPI policies are designed to cover debt repayments for borrowers who suddenly lose income due to unemployment, illness or accident, and most are sold alongside personal loans, mortgages and credit cards. The scandal lay not in PPI itself, but in its expense and the irresponsible way that it was sold, with some banks pushing the product on people who would never have been able to make a claim (because they were self-employed or retired). Other providers failed to be upfront about exclusions, and shockingly, some customers were even forced to take PPI out, either being told that it was compulsory, or having it sneakily added without them realising.

You always need to complain to the business that sold you the policy first, and you must give it eight weeks to look into your complaint. After this, if you're not happy with the way it has dealt with your complaint you can ask the FOS to investigate it for you. The ombudsman currently receives around 1,000 new PPI complaints every day, but they uphold 80 per cent in favour of the consumer, forcing the business to pay compensation, averaging at £2,750.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

    Day In a Page

    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones
    Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

    Why are we addicted to theme parks?

    Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
    Tourism in Iran: The country will soon be opening up again after years of isolation

    Iran is opening up again to tourists

    After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
    10 best PS4 games

    10 best PS4 games

    Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
    Transfer window: Ten things we learnt

    Ten things we learnt from the transfer window

    Record-breaking spending shows FFP restraint no longer applies
    Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

    ‘Can we really just turn away?’

    Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
    Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

    Nine of Syria and Iraq's 10 world heritage sites are in danger...

    ... and not just because of Isis vandalism
    Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

    Girl on a Plane

    An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent