Recently there has been a lot of consumers making claims against
banks and other financial institutions for mis-sold Payment
Protection Insurance (PPI). This financial product was created to
provide people who were worried about losing their income and being
unable to continue paying their debts, PPI helped to protected
their repayments. In a huge number of cases these policies were
purposefully mis-sold by businesses, these businesses breached the
Financial Services Authority's (FSA) rules on how insurance
products should be marketed and sold. This meant that consumers who
had been affected by this unfair breach were able to make claim for
compensation.
Whilst the major banks and various PPI sellers were pay out
millions of pounds every year to refund policy premiums, during the
last 18 months the probable cost of the PPI mis-selling scandal to
financial businesses has exploded as a result of two key
developments.
Firstly, the FSA made a new rule at the end of 2010 that would
have introduced tough new selling standards, and in another
unprecedented move, FSA announced that these rules would apply to
all previous sales. The FSA's new regulations also required all
businesses that had sold PPI would need to review all of their past
sales and write to every consumers who were at serious risk of
having been mis-sold PPI, explaining the systematic failures and
breaches of the FSA rules. These changes to the regulation of PPI
selling were predicted to result in an exponential increase in the
number of people making successful PPI claims. Before the new rules
the FSA had issued a statement suggesting that the total refunds
would reach at least £2 billion, but as a result of research
conducted during the course of developing the new regulations, they
estimated it would be around £4.7 billion.
The major high street banks launched a legal challenge against
the new regulations in October 2010, in an attempt to avoid this
massive pay out. They argued that the FSA had exceeded its legal
powers by producing retroactive rules. The Banks were represented
by the British Banker's Association who requested the High Court to
arrange for a judge to conduct a Judicial Review of the new
regulations in order to determine whether they were lawful. The
banks then decided to put a hold on the processing of all new and
existing PPI claims, asserting that the outcome of these complaints
would be affected depending on whether the judicial review failed
or succeeded.
But in April 2011 the High Court concluded that the new
regulations were completely lawful and that all businesses involved
in the selling of PPI must continue with processing mis-sold PPI
complaints and must follow the new regulations. The banks had the
option of challenging this decision by requesting an appeal by
13th May 2011. However, on 6th May Lloyds
Banking Group, the biggest stakeholder in the PPI market announced
that it was abandoning the legal challenge, and then all the other
remaining banks followed suit.
Since the banks' now have to follow these new regulations, the
banks have set aside some money to meet the potential mis-sold PPI
claims. Lloyds Banking Group alone has earmarked £3.2 billion to
pay compensation to wronged consumers, Barclays has set aside £1
billion, RBS made a provision of £850 million and HSBC has informed
its shareholders that up to £256 million may be needed to pay
refunds to consumers. Together with smaller compensation funds
announced by minor financial services providers, this amount is a
total compensation fund of around £8 billion, which is almost
double what the FSA had estimated. If you have ever had a PPI
policy then there is a very real possibility that you are entitled
to a refund from this compensation fund, and you should make a
claim as soon as possible.
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