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.