The History Of Ppi And The Economy

Numerous consumers have taken note of Lloyds Financial Group's critical decision

to put aisde roughly 3.2 billion pounds for customers who had been mis-sold payment protection insurance, or PPI. This has exposed a scandal that is currently rocking the world but actually goes back over a decade. This provision, released earlier in the year as a result of a court ruling enabling customers to make claims for compensation.

Initial projections slated the claims to total around 4.5 billion, but ultimately, it seems the problem was much larger still. For some time, these PPI policies were sold right along side loans, credit cards and mortgages. This began in the early 1990s and continued on. The basic premise was that it would repay any borrowings if a consumer became ill or lost a job and could not.

The initial pressure on banks began when they started to show a significant jump in profits, these profits were attributed to payment protection insurance policies being sold. Complaints began to really heat up around 2004 when the Guardian exposed that most banks would return a mere 15% of their total PPI income to those who made claims. This provided a much more lucrative cash flow than either auto insurance or home insurance.

Steps were taken when Vince Cable, the acting Liberal Democratic Treasury spokesman noted that HBOs and Barclays were turning a tremendous profit in this. This then sparked an investigation. That same year, Citizens Advice began to intensify pressure on the investigation and began calling PPI insurance a "protection racket". In 2005, the Financial Services Authority began to take control, and getting the entire thing sorted was top priority in 2005. Because that same year FSA began regulating the general insurance agency, by year's end, the agency contacted each of Britain's banks in order to further look into the issue.

At that time, the FSA started to impose some staggering fines for those mis-selling PPI. The first went to Regency Mortgage, for a total of 56 thousand pounds. The company had been selling "right to buy" mortgage protections for those who would not even be able to make a claim, and even those who already had insurance. After that, the industry would see many more fines and penalties.

Finally, in 2009, the FSA did away with the worst of the worst. Those "single premium" Policies that had caused the most damage. This was sold to those who had taken a mortgage and from the very beginning added to their loan. When the Office of Fair Trading began to take an active involvement by 2007, the industry began to encounter more vast changes.

Though the banking industry attempted to argue that the imposition of these new standards was unfair, it did offer consumers much more protections in terms of PPI. When the issue went to court, the British Banking Association brought about a judicial review, hoping to further the point but was ultimately defeated, leading to the flood of PPI Claims being made.

Clearly this has all had an impact on the economy because this unanticipated release of funds has hit banks through the years since fairly hard. Many have been tightening their belts on extending credit, and loan approvals have also taken a bit of a tumble. This has left many consumers wondering if this trend will stabilize or if the mis-sold PPI issue will continue to play a factor in an already hurting economy.

by: Timothy Capper

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