Mis-sold PPI – The Verdict: High court Rules Against UK Banks
£4.5bn Bill Awaits PPI Providers
UK Banks have lost a High Court judicial review against FSA guidelines regarding payment protection insurance compensation
. Mr Justice Ouseley delivered his verdict in favour of the FSA guidelines who argued payment protection insurance was being mis-sold
by UK Banks.
The British Bankers Association (BBA) challenged new FSA guidelines
which stated banks were required to review past sales of payment protection insurance policies.
The new guidelines were put in place to ensure consumers were treated fairly
when purchasing payment protection insurance, as well as being able to complain about being mis-sold a PPI policy
The FSA estimates show that companies providing payment protection insurance will need to pay out in the region of £1.3 billion in compensation in the next 5 years for new mis-selling claims made. He said, "If that assumption is an underestimate of the response rate, the costs are going to substantially increase".
Lord Pannick QC told the judge that implementation of the new regulations could cost in the region of £3.2 billion.
Regarding the ruling, Mr Justice Ouseley said, "I do not find the claimants' submissions persuasive preferring instead those of the FSA and the FOS".
He also stated, "Any requirement for firms to determine complaints by reference to standards retrospectively imposed by the FSA and altering liabilities of firms to their customers would be unlawful."
Since the beginning of the legal proceedings, all new mis-sold PPI complaints
were suspended. With the decision of the High Court, it is expected there will be an influx of new complaints which could cost PPI providers billions. The BBA argued that the new rulings would leave 35 insurance companies unable to pay the compensation which could lead to insolvency. This would then leave the liability of the claims with the Financial Services Compensation Scheme.
Payment protection insurance is sold in order to cover loan repayments if the holder of the particular loan is unable to pay the instalments due to an accident, illness or if they lose their job. Under the new guidelines, payment protect insurance providers are required to spend time with consumers and ensure they understand the main points of the policy
before they take out a policy. They are also required to let the consumer know that the insurance policy is optional
rather than giving the impression that it is essential.
Complaints made against PPI providers showed that many consumers felt as though they needed to take out a policy or they felt pressured into taking it by sales representatives and in some cases consumers had not even known they had taken out a policy in the first instance until they reviewed the monthly repayments they were making.