FSCS could be hit with £50m PPI bill

Failed financial firm forces FSCS facilitation

by Luke Whitmore, 2nd September 2011

The Financial Services Compensation Scheme may have to foot a £45m bill to cover compensation costs for consumers who were mis-sold PPI by a financial firm which has now gone under.

Wilmslow Financial Services - formerly Freedom Finance plc - set aside £50m in anticipation of payouts to customers who were victims of PPI mis-selling, before going into administration this May. This estimate would have been based on the number of PPI policies they believe were mis-sold to unsuspecting borrowers.

Due to the company having been under FSA regulation during its lifetime, the FSCS is now obliged to cover the costs of 90% of any claims that may be made against the firm, with no cap on the total sum.

Freedom Finance plc sold over 16,000 PPI policies in the period of time lasting from 2005 to 2008, before much of the firm was sold on in November 2009, becoming Wilmslow Financial Services.

A recent report on the company states that "Whilst non-preferential creditors total £50.50m, it includes an estimated worse case scenario PPI claim liability totalling £50m". The total is expected to be significantly less than this as claims have not been made against a vast percentage of the PPI policies that were sold, but there is the potential for wronged customers to still come out of the woodwork.

With the recent prominence of mis-sold PPI in the media, it is expected that more mis-sold PPI policies will come to light, with a spokeswoman for the FSCS commenting that "We are aware of around 2,000 claims but expect to receive more".

PPI, or Payment Protection Insurance, is a form of loan insurance which was vastly mis-sold to borrowers in recent years. Mis-selling is when a person is signed up to a policy which is not suited to their needs, or are paying for a policy without realising.