Banks put mis-selling claims on hold
Banks yesterday blocked calls to refund hundreds of thousands of customers who bought payment protection insurance (PPI), despite losing a landmark legal challenge against the products.
In the latest twist in the long-running PPI scandal, a High Court judge threw out a judicial review by the British Bankers' Association (BBA) against moves to force its members to contact customers if there was a good chance they had been mis-sold policies. Campaigners estimated that the ruling could lead to three million customers receiving £4.5bn in refunds, consisting of premiums and interest.
However, banks said they would continue to put claims on hold until they have decided whether to appeal against the decision, despite a call from the City regulator, the Financial Services Authority (FSA) to start reconsidering complaints immediately. In the latest attempt at a clean-up of the £5bn-a-year PPI industry, the FSA announced that banks would have to review past sales of PPI and take action to ensure that previous customers had not been ripped off.
In November the BBA announced a judicial review of the plan, freezing consideration of PPI complaints until the conclusion of the case.
Hours after Mr Justice Ouseley rejected the challenge yesterday, the BBA refused to start reconsidering the cases, saying it would consider appealing within 21 days.
A spokesman said: “We are disappointed with the judgment and now need to consider the details of it very carefully as well as next steps, including whether it would be appropriate to apply for permission to appeal.
“Any complaints that are directly affected by the judicial review and therefore cannot be decided will continue to be placed on hold until the next steps have been decided.”
The decision outraged consumer groups, who have been warning of PPI mis-selling for years. PPI is lucrative for financial providers: whereas insurers pay out claims in all but 22% of motor insurance premiums, they keep 86% of PPI premiums.
Peter Vicary-Smith, chief executive of the consumer group Which?, said: “Instead of dealing with mis-selling, the banks are trying to wriggle out of paying up using the courts.”
Martin Lewis, creator of Moneysavingexpert.com, urged the FSA to threaten to remove the banks' licence to sell insurance unless they backed down and removed the waiver. Accusing the banks of behaving “abominably”, he said: “If they can't play the game they shouldn't play at all.”
The Citizens Advice Bureau first raised the alarm about PPI in September 2005, when it made a super-complaint to the Office of Fair Trading (OFT).
The OFT, then the Competition Commission, took a further three-and-a-half years to bring forward proposals for tackling the mess.
Some 200,000 customers have complained to the free Financial Ombudsman Service about PPI.
More than 80% of its decisions go in favour of customers and against the banks.
Adam Phillips, of the FSA's consumer panel, said: “It is shameful that some in the banking industry are still refusing to admit to the scale of PPI mis-selling and compensate consumers. It would be very disappointing indeed if today's litigation marked the beginning of a long drawn out legal dispute. It is time for the banks to stop hidingbehind expensive lawyers and to finally give consumers the redress they deserve.”
PPI covers payments for loans and credit cards if the policyholder falls ill or loses their job. However, the policies are riddled with loopholes, such as exempting claims from the self-employed or those with back injuries, the major cause of workplace illness in the UK. Martin Lewis (right) has urged the FSA to threaten the banks over the PPI issue.