An Ill Wind For British Banks Could See A Windfall For The Consumer
Posted by seo With a win already in the High Court by the Office of Fair Trading (OFT) against British banking institutions over unlawful bank charges, another scandal of even greater proportions is now shaping up and make the bank charges debacle look like a mere bagatelle
It is estimated that banks make £4bn a year out of charging their clients for unauthorised overdrafts, bounced cheques and unpaid direct debits. The retail banking system is without question the most profitable business sector in the United Kingdom with banks making an average of £75.00 per customer annually compared with the retail sector at just over £50.00.
However, no one knows with any degree of certainty how much money banks have made over the last few years in an area that is to be the subject of the latest scandal. The figures are so excessive that banks are preparing themselves for claims that are guaranteed to set a precedent for the highest fines and consumer compensation claims ever seen in this economy.
The area in question is the misselling of Payment Protection Insurance (PPI). A number of financial institutions have already been taken to task over the misselling of these products but it looks like the floodgates for ppi claims could soon open.
If you have ever taken out a mortgage or loan you are bound to be familiar with situations where the lender tries to persuade you to take out insurance to cover your repayments in the event that you are unable to work due to losing your job, or if you were to fall sick or have an accident. On the surface, these offers seem reasonable enough, especially when you consider that unexpected misfortunes do happen and no one can predict what’s around the corner. Therefore taking out insurance for these events seems like the sensible option.
But there are a number of key areas that have been identified as misselling of this type of insurance. There are many examples of this that have been identified including:
- Being told by the lender that taking out the insurance is a condition of the loan. It is a difficult situation to question a lender regarding PPI especially when you have the guarantee of an approved loan if you take out the required insurance policy.
- The insurance proving more expensive than the loan itself. In numerous instances the lenders will generally make more money from the sale of the insurance policy than from the interest they make on the loan. In a typical scenario, if you borrowed £10,000 over 60 months (5 years) at 6.5%, the interest payment would be a not immodest £1,700.00 but the insurance cost is a whopping £2,100.00.
- In other instances many of the products recommended by the lenders are not suitable for the individuals buying them. If, for example, you are self employed or on a short term contract, most of the policies providing unemployment cover will not cover your repayments were you to lose your income, as they are geared towards those in full time employment.
- The customer not even realising that they have the insurance. With the complicated jargon that is used in loan documents many banks take full advantage of this, using terms such as ‘fully protected loan’ which is just another way of saying ‘we are taking money out of your pocket without your knowledge’.
- You were not told other options and policies are available. There are many policies on the market that provide better cover for a fraction of the cost being levied by many of the lenders.
If any of these circumstances sound familiar, you may have a potential ppi claim which could result in you being refunded thousands of pounds. If you have taken out any of the products below you may be in line for an unexpected windfall:
· Mortgages & loans
· Credit cards
· Store cards
· Mail order catalogues
A number of lenders have been fined by the FSA recently for providing their clients with poor advice, including HFC Bank which is part of HSBC, GE Capital Bank and Capital One Bank. And that list will grow much larger as people become increasingly aware of what is going on.
Those with any kind of finance agreement listed above need to check them carefully. Anyone who has taken out PPI with a loan or credit agreement over the last six years should check the following to see if they have potentially been missold a policy
- Were you sold a policy when you had a pre diagnosed medical condition?
- Was the cost of the policy explained to you, and were you informed that you could buy it elsewhere potentially at a lower cost?
- Were you led to believe that the policy was a condition of the loan?
- Were you aware that PPI was attached to your borrowing?
- Were you told that being self employed, unemployed or on a fixed term contract would make you ineligible for a claim?
About 25 million PPI policies are sold in the UK every year and in a lot of instances the recipient is unaware that they have it. Many people can now claim compensation and get back thousands of pounds that they have paid out. Currently around four out of five PPI claims are upheld if it needs to go to the Financial Ombudsman.
But claiming your money back from missold payment protection insurance may not be that easy ! In summer 2010 the Financial Ombudsman finally reacted to public pressure and insisted that banks review over 200,000 cases of rejected PPI claims. The British Banking Association (BBA) initially reacted favourably to the idea until the Regulator imposed conditions to be adhered to retrospectively on all these claims.
The BBA’s members fought back and have now taken the Regulator to the High Court to get an official adjudication on the new rules. This Judicial Review is due to be heard sometime Q1 2011.
In the meantime, the vast majority of high street banks and lenders have used this as the perfect excuse not to process any further PPI claims until the Judicial Review is heard and the outcome published.
The Financial Ombudsman Service (FOS) has commented that there is no valid reason for the banks to put any PPI claims on hold, yet they continue to do so.
It is estimated there is some £2.8bn worth of payment protection insurance currently in the UK. If even 25% of these have been missold whatever the outcome of the Judicial Review, the Regulator will have to force banks to review all those missold cases at some point. Under what criteria they review them and what conditions will be imposed are yet to be decided. Whatever the outcome, a healthy windfall for the consumer is inevitable, and yet more cash loss for the greedy British banks.
