With so many news articles about payment protection insurance (PPI), the scandal that followed and the multitude of PPI claims, it may be difficult for people to work out the truth. Separating fact from fiction becomes necessary to understand how PPI Compensation pay outs are affecting the banking industry.
In 2010, the Financial Services Authority made a decision that banks had to pay out to people making PPI Claims. However in October 2010, the British Bankers’ Association decided to challenge this decision and took the case to the courts. During this time, the banks put a stop on paying out any PPI Refund cases and a large backlog of cases built up. When the case was decided against the BBA in April 2011, the banks had to reopen all existing PPI Claims and accept all new cases for consideration.
In 2005, the FSA started to investigate and has to date fined 24 companies for their part in the mis selling of payment protection insurance. Reasons can include not telling customers about a PPI policy that was added to their product, pressuring a customer to take it out or not ensuring the PPI policy met the customers’ needs. Fines have been nearly £13 million in total. The financial industry has had to brace themselves for a large number of claims from customers seeking PPI Compensation. There are an estimated 2 million customers who have been mis sold PPI and banks and financial organisations have set aside an amount totalling £7.4 billion in preparation for paying out PPI Refund requests.
The FSA has information on their website about payment protection insurance statistics. It is said that in the first half of 2011, £215 million was paid out in PPI Refunds. The Financial Services Ombudsman’s published information says around 51% of all complaints in 2011 were PPI related, and when investigating complaints, in three-quarters of all cases it found in favour of the customer. This has led to some concern that the £7.4 billion put aside by the financial organisations may not be enough to cover the remaining claims to be made.
So, with more money needed to be earmarked for PPI Refund payments, the FSA has also started to look at the fat cat bonus schemes seen in previous years. In view of the PPI scandal, the FSA does not think these large bonuses are appropriate for banking chief executives and has applied pressure for these to be cut. To date, RBS boss Stephen Hester turned down his bonus early this year of a shares only payment worth nearly £1 million. It is hoped more bosses will follow suit and show their regret at the PPI scandal.