The PPI scandal is set to engulf the financial sector with more fines and charges, according to recent figures released.
Following even more cases, the major banks have collectively had to set aside more money to settle claims, bringing the total cost of PPI mis selling to £22bn, making it the most costly banking scandal ever for British banks.
Following from reassurance from senior banking executives, the Financial Ombudsman Service (FOS) stated earlier this year that it has seen a substantial fall in PPI claims. FOS officials had received just under 57,000 PPI related complaints in the second quarter, a fall from the 132,000 received over the same time in 2013.
However, July to September this year saw a wave of claims being made by claims management companies (CMC’s), contrary to predications and expectations. Many of these latest claims date back prior to 2005 (this was the reference point for a 2010/11 judicial review brought unsuccessfully by the major banks). Banks are bound by law and regulations to keep records for up to seven years; with thousands of PPI claims now being brought dating back prior to 2005, many such claims now relate to policies that neither customer nor bank has sufficient records or documentation for.
The cost of administering PPI claims, even those that turn out to be invalid or fraudulent, can be up to £1,000. As a result of this sudden influx of claims, the major banks have used their quarterly reports in early November to top up PPI compensation funds. Reflecting the increased PPI bill, the major banks added to their respective PPI funds an extra £1bn collectively.
Barclays had already set aside £4.85bn for PPI claims, with RBS and HSBC setting aside £3.2bn and £2.1bn respectively. Comparatively, Spanish banking giant Santander has paid out the least, setting aside only £900m. Lloyds Banking Group (LBG), comprising as it does several different banks, had by far the biggest share of PPI policies; as such, it has had to set aside a record £10.425bn for compensation and fines.
The influx in PPI cases, and the need to set aside yet more money, has increased calls from the banking sector to resurrect discarded plans for a ‘time barring exercise.’ Under that, a cut off point for affected consumers to submit PPI claims would be imposed. Indeed, the British Bankers’ Association (BBA) has recently been involved in tentative discussions with financial regulator the Financial Conduct Authority (FCA) as regard imposing such time barring.
In addition to profit margins, and market performance, the major banks also point out the constant cost of PPI compensation is taking away from the money that should be available for small businesses, which is a politically imposed priority for the major lenders. However, the prospects of such a time barring exercise have been received skeptically by the FCA.
Despite the passage of time, PPI mis selling is still an ongoing scandal for the British banking sector- and an increasingly expensive one. With the FCA seemingly determined to get as many affected consumers as possible compensated, it seems as if the banks had by no means heard the end of it. Money for compensation and fines will still have to be set aside- regardless of the cost to the banks overall. When it comes to PPI mis selling, the affected consumer will definitely be able to get redress from the banks.
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