How banks failed the nation: The PPI scandal revealed

Payment Protection Insurance (PPI) has been widely mis-sold to a number of people across the UK over the last decade. Banks and lenders have been notorious for selling the product to consumers while providing them with little or no information about it.

This has been going on for years and banks have fooled the Great British public by essentially taking money from the nation without sufficient consent or explanation.

The insurance product itself can be useful in some cases. However, it was commonly mis-sold to numerous people who would never have been eligible to make a claim.

Now, as the loan protection racket continues to rumble on, banks have forked out billions in compensation to those they have wronged.

For advice on how you can claim, visit our partners Immediate Financial

Hereís a quick guide on what has happened and how the compensation saga continues to escalate;

What is payment protection insurance?

The insurance is typically used to make repayments on personal loans, credit cards, car finance and other financial products should consumers lose their jobs, become sick or have an accident which prevents them from earning.

PPI is designed to act as a financial safety net should anything happen, however, the majority of policies only cover repayments on things you borrow. Some policies will also cover household costs such as bills, food costs and even council tax and rent payments.
 
In most cases the insurance will only make repayments up to a period of 12 months.

How was PPI mis-sold?

It is only valid for people between the ages of 18 and 65 who are working full time or at least 16 hours a week. The policy was often sold to students, pensioners and the self-employed, despite the fact that neither of these groups were eligible to receive it. 

A huge number of people were not even told they were paying for the insurance policy.

When someone went to take out a personal loan or credit card, the bank or lender would embed the additional fees for the insurance within the cost of the loan or credit card payments. In some cases, people were paying for more than one PPI policy.

In other cases, banks informed customers taking out loans or credit that the insurance was compulsory and that they wouldnít be able to take it out without buying PPI.

As a result of banks and lenders selling a product that was invalid, not telling consumers that they were paying for the insurance and not giving them the correct information, they have been heavily fined and forced to pay out millions in compensation.

PPI compensation payouts

Banks have paid out a staggering £1.9 billion in compensation over the course of 2011 for mis-sold PPI.

The Financial Services Authority (FSA) claims that much more could be awarded over the next two years. There is a large backlog of payments which have yet to be handed out as the scale of the scandal continues to unfold.

Payouts accelerated towards the end of last year with a monthly record total of £441 million paid in December alone.

The FSA claims that 19 unnamed firms account for the majority of PPI cases. 
 
On average, victims of mis-sold PPI receive more than £2,750 in compensation. However, the figures so far range from £200 to £10,000.

After banks lost a High Court ruling in April last year, they have been told to deal with the 200,000 complaints that were on hold pending the outcome of the hearing. Banks and lenders soon became flooded with complaints as the scandal came to light.

The Financial Ombudsman Service (FOS) currently receives around 1,000 new PPI complaints every day, on top of the 300,000 it has already received. As the FOS currently upholds three out of four cases in the consumersí favour, itís now estimated that the final bill for banks could reach £8 billion!

Banks are suffering
 
The sheer volume of people claiming back for mis-sold PPI shows the true extent of how deep this scandal runs. Banks have set aside billions of pounds to cover costs, but they are still suffering.

A number of banks have reported profit losses for 2011 after dishing out compensation payouts. Profits at the UK arm of Santander fell by 40% in 2011, reaching less than £1 billion. Lloyds TSB also reported profits losses and have resorted to stripping directors of their bonuses.

Lloyds Banking Group has recently announced plans to cut £2 million off the bonuses paid to directors who were responsible for allowing the insurance to be mis-sold.

This includes former Chief Executive Eric Daniels and 12 other executives, four of which were on the board of directors. This is the first time that a British bank has gone to such lengths after experiencing a financial loss.
 
The Royal Bank of Scotland (RBS) has reported losses of £2 billion in 2011 after setting aside £850 million to cover compensation costs.

For advice on how you can claim, visit our partners Immediate Financial

 

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