subject: Banks Receive Help From Fsa Against Crippling Compensation Claims [print this page] Personal Protection Insurance is a very good insurance plan that can help a borrower stay out of debt in case they are unable to maintain loan repayments due to illness, unemployment or an accident. It is also known by other names like Accident, Sickness, Unemployment Cover, Redundancy Protection, or Loan Protection and Mortgage Payment Cover. Such policies generally protect most types of personal credit, which include any personal loans, mortgages or credit card repayments. The cover is usually purchased at the time of the loan agreement, but it can be purchased at a later date as well.
Recently, the Financial Services Authority (FSA) carried out an investigation into the selling practices of PPIs and found that a lot of these policies were sold unfairly. The FSA has strict rules for the selling of these policies that must be followed and it was found that the rules were violated. A lot of the times, the lending institutions added PPI to a loan or credit card without the consent of the consumer. Since the policy is known by different names, tens of thousands of consumers did not even realize what they are paying for. Personal Protection Insurance tends to be an expensive policy and in many cases, it cripples the consumer's finances instead offering any protection.
In order to sell the PPI, the lending institutions would tell potential clients that PPI was either necessary for loan approval or it would increase the chances. Many times, pushy sales personnel would pressurize consumers into buying the policy without fully explaining the contract terms or the cost of the policy. Also, quite often, the policy was sold to people who had no payment to protect, like in case of self-employed, retired or unemployed individuals. FSA said people who were sold policies like this were entitled to reclaim the payments they had made. This lead to thousands of complains stockpiling in banks.
The FSA's decision stated that banks that mis-sold PPI had to pay the consumers back. Many major banks tried unsuccessfully to challenge the ruling, while stalling claims from millions of people. In early 2011, after banks abandoned their legal challenge to the FSA's decision, the FSA told the concerned banks to speed up the compensation payment process and told the banks that it will face fines if the process was not handled quickly.
Major banks put aside billions of pounds to cover estimated compensations that they would be obligated to pay out, in addition to hiring extra staff to process the huge influx of complaints. The repayments have put a major dent in the finances of the big banks. Despite every effort, many of the banks were not able to meet the deadlines for clearing the complaints. The Financial Services Authority finally extended the deadline to allow banks more time to process the backlog of claims against them over the sale of PPI. In the second half of 2011, the number of complaints decreased significantly as the banks struggled to clear all complaints and meet the new deadline.
After the mis-selling of the PPI scandal broke, many banks stopped selling PPI. The U-turn was made in an effort to restore confidence of consumers in banks. In 2010, the FSA estimated that PPI mis-selling would cost banks 4.5bn but revised estimates indicate that when all is paid off, the bill would actually be closer to 9bn. The mis-selling of PPI was one of the most expensive mistakes for the banking industry.
