Simon Read: It's appalling that banks are delaying over PPI payouts

 

Taxpayer-backed banks Lloyds and RBS said their huge bill for compensating customers flogged useless payment protection insurance was a major contributor to their massive losses announced this week. Lloyds took a £3.2bn hit for PPI compensation while RBS, which owns NatWest, was forced to set aside £850m to repay customers.

There was no detail on how many customers have had their cash repaid but, judging by figures from the City watchdog about compensation payouts, it may be as little as a quarter. The Financial Services Authority said £1.9bn was paid out in compensation last year, including £441m in December, a monthly record.

But this is less than a quarter of the estimated £8bn lenders have set aside for compensation. That suggests banks are dragging their feet about paying out, but it's also a sign that many lenders are seemingly failing to be fair with their customers. In the first place many are not bothering to contact all the people that may have been victims of mis-selling. So they may have set aside the cash, but that doesn't mean they will necessary have to pay it out. That's shabby in the first place. It could almost make you believe that the lenders don't want to repay their badly treated customers.

Next, some lenders have apparently made the process of claiming compensation overcomplicated or lengthy. Lloyds Banking Group, for instance, proudly stated last year that: "We will we provide a full response within 16 weeks of receiving the complaint."

In other words, anyone putting in a claim should expect to wait up to four months before hearing the decision from the bank. The net result of that is many claimants, unsure whether or not they may actually be eligible for a payout, could be tempted to give up, especially when the form filling and red tape takes too long. Are the banks' claim processes deliberately designed to to be so difficult as to put people off? If so, their plan hasn't worked. Instead it has opened the door to the army of claims managers cashing in on the compensation process.

They can help those people who have difficulty with the paperwork, but charge them sky-high fees for the privilege. With typical compensation payouts at around £2,750 and the firms charging 25 per cent of the compensation as a fee, it means they can trouser almost £700 on average. With some payouts being much higher, the fees will correspondingly be more juicy, of course.

When I've mentioned the claims management firms in the past, it has prompted a volley of complaints from those in the industry who consider they offer people a decent service. So let me now quote Richard Lloyd, of Which?, who this week said: "We have found dubious practice by claims management companies, including bombarding people with misleading information about getting PPI compensation."

But it's the banks who deserve our unhappiness over the whole elongated business. Once they had been found guilty they should have speedily put things right rather than using further delaying tactics. Their behaviour since the beginning when they first pushed the dodgy policies onto unwary customers has been appalling.

The longer they delay payouts, the more they punish their victims.

Mind you, it's probably better to drag your feet than not pay your bills altogether. Loans company Norton Finance sold loads of PPI policies and consequently was landed with a £2.2m mis-selling compensation bill.

Has it repaid people it flogged the policies to? No. Instead, earlier this month Insolvency Today magazine reported that Norton Insurance Services and Norton Finance (UK), the two subsidiaries involved in PPI sales, had been declared insolvent.

The directors of Norton Finance Group (not Norton Finance (UK) you understand), were apologetic. They said: "It is with reluctance we have had to close these two subsidiary companies as they traded successfully for 38 years until the regulations surrounding selling of payment protection insurance changed retrospectively last year."

So it seems they blame changes in the law for their woes rather than the fact that they were found guilty of mis-selling the cover. So where does that leave customers of the two now-insolvent firms? The Financial Services Compensation Scheme will be forced to step in.

Once the FSCS formally declares the two Norton Finance Group subsidiaries to be in default, it will deal with claims against the firm and arrange payment for compensation. However, that is likely to take many months, meaning people who used either of the Norton Finance companies will have to wait even longer for their compensation than if they were with one of the major banks.

Also there's a question of who pays the compensation. If the FSCS is forced to stump up for it, it will have to recover the money by increasing the levy it charges the financial services industry. In turn financial firms will be forced to hike charges to cover the increased cost of the levy. Eventually, therefore, normal folk like you and me will end up paying. The list may even include those who were victims of the Norton Finance mis-selling in the first place. And that seems bonkers.

But what about the staff and directors of Norton Finance who worked so hard to turn a profit by selling loans and payment insurance for all those years? Rest assuredthere's good news for them. The two bust companies traded from the same premises as another company called Norton Finance and Mortgages Limited. That company, NFM, for short, has since purchased the business and assets of both, but not the £2.2m PPI debt, of course. The statement from Norton Finance directors reads: "I am pleased to announce that NFM has acquired the businesses and all employee positions will be protected. We look forward to continuing to work with all existing introducers and partners."

I am pleased for the staff. It's never good news to hear of people losing their jobs. And I am pleased for the directors of the firm who can carry on trading with impunity having completely cleared the slate of that troublesome PPI compensation bill. And completely within the law.

s.read@independent.co.uk

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
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Financial Adviser

    £20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

    SThree: Graduate Recruitment Resourcer

    £20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

    Guru Careers: Application Support Analyst / 1st Line Support

    £25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

    Guru Careers: .NET Developer / Web Developer

    £45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

    Day In a Page

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence