PPI cases are a stark reminder of how badly consumers were let down by their banks

Outlook If you thought we might soon see the end of the payment protection insurance (PPI) mis-selling scandal, think again. Let me explain: in the early years of the Noughties the Financial Services Authority (FSA) decided there was no reason for consumers to be told how much commission was being paid when they were sold general insurance products such as home and motor policies. Needless to say, the insurance industry had lobbied hard on the point.

The FSA’s reasoning went like this: these products are relatively simple and the market for them is competitive. So if commission leads to high prices that punters don’t like, they can easily shop around for better deals.

Quite why that counts as a reason not to disclose how much of a premium is made up of commission is beyond me. But there is worse to come.

As we all know, the market for PPI was anything but competitive. Too often consumers were put in the position of having to buy all-but-worthless policies from just one provider, as a condition of getting the loans they wanted.

With no meaningful competition, the policies sold were shoddy and the commissions attached to them went through the roof.

Some of them beggar belief. A case that has just been decided by the Supreme Court focused on college lecturer Susan Plevin, who spent £5,780 on a PPI policy she didn’t really need.

What she didn’t know at the time was that 71 per cent of the price of that policy went in commissions to various parties connected to the loan. This is by no means an extreme case. The judgement quotes another case in which the commission to a lender hit a staggering 87 per cent of the cost of the policy.

The Supreme Court has decided that this is quite unfair, not just in terms of common sense, but in law, which might very well have implications for other cases that might appear to have been resolved.

In its response to the judgement, the FSA’s successor, the Financial Conduct Authority (FCA) has issued a rather bland statement saying that it is assessing the implications. Behind the scenes you can bet some of its people might be using rather more colourful language.

Regardless, there are some clear lessons to be learned here. For a start the FCA, and other regulators for that matter, might like to reflect on the fact that it’s never a good idea to allow consumers to be kept in the dark.

Second, it’s time to end all talk of time-limiting PPI claims. That might be the banking industry’s fondest wish right now. Its executives dream about it while they’re at their holiday villas and the FCA has shown signs of heeding their calls because it would also like to get this thorny issue out of its in-tray. However, the way the FSA’s decisions have rebounded on the new watchdog does rather demonstrate the danger of paying too much attention to industry lobbying.

Moreover, the court case clearly demonstrates how disgraceful the behaviour of parts of the financial services industry was, and that is not something that should be swept under the carpet just because it’s convenient to do so.