By Elliot Wright, 9th March 2010
The Financial Services Authority has estimated that mis-sold
payment protection insurance (PPI) could end up costing the
PPI industry over £4bn.
In a paper published today, the FSA estimates that the average
compensation owed to consumers who have been mis-sold PPI is
£1,560.
Over a period of five years this could cost
PPI-selling firms, including banks and lenders, between
£1bn and £3bn in redress for customers who have yet to complain,
plus between £700m and £1.2bn for existing complaints.
The figures were revealed in the FSA's latest paper into making
the PPI market fairer for consumers. However, the proposals have
suffered a setback after facing opposition from the industry.
The FSA estimates that the average
compensation owed to consumers who have been mis-sold PPI is
£1,560.
In response to concerns that firms were rejecting too many
complaints, the FSA last September proposed new guidance to ensure
PPI complaints are handled properly and appropriate compensation be
paid to those who had been mis-sold policies.
They also want firms to reopen around 185,000 previously
rejected PPI complaints and reassess them against the new
rules.
Consumer groups applauded the FSA's proposed measures but PPI
providers and industry groups were highly critical, causing the FSA
to revise its plans.
The FSA said today that a further six week consultation is now
required on its revised package of measures.
Dan Waters, the FSA's director of conduct risk, commented:
"We're disappointed that the industry has responded so critically
to our proposals but we remain 100 per cent committed to bringing
about genuine, lasting change in the PPI market. We do, however,
recognise the importance in ensuring that genuine concerns have
been listened to."
The Financial Services Consumer Panel - which advises the FSA on
consumer concerns - accused the industry of deliberately delaying
fair treatment for PPI customers, and said that consumers need
"tough action" from the FSA.
Adam Phillips, Chairman of the Financial Services Consumer Panel
said: "For too long, firms have been letting down their PPI
customers by not handling their complaints fairly. It seems
that too many firms have regarded PPI as an easy product to sell
and make money, without considering whether it really is right for
the customer.
"Now the industry seems determined to fight against the FSA
introducing new rules and guidance which would ensure consumers
receive a fairer outcome if they make a complaint.
"However, this is no reason for the FSA to back off, and we are
pleased that the tone of the announcement today indicates the FSA
is not planning to do so. Consumers need tough action from
the FSA."
Claims Financial