UK banks to bleed for mis-selling payment protection
30 January 2013
A well-intentioned move by the UK government to back payment protection insurance (PPI), a product sold by banks ostensibly to protect customers, has backfired badly, with complaints of what could be one of the country's biggest-ever mis-selling scandals soaring to unprecedented proportions.
Banks are set to see their compensation bills scale new heights as The Financial Ombudsman Service (FOS), Britain's banking watchdog, is being swamped by 15,000 complaints a week, two-thirds of which are upheld; and has had to take on an extra 1,000 staffers to cope with the deluge.
The product was initially meant to protect borrowers who lost their job or became ill and couldn't keep up loan repayments.
However, it was hard-sold by bank staff, many working on commission, to people who would never be able to make a claim, including part-time and seasonal workers, pensioners and persons with long-standing illnesses.
The ombudsman received 145,546 complaints about the products in just three months between October and December. That is more than the FOS – which steps in when banks and their customers cannot reach an agreement – received in any 12-month period between 2000 and 2010.
Banks have already set aside some £11 billion to compensate customers who were mis-sold PPI policies. Now lenders are expected to have to set aside hundreds of millions of pounds more to repay customers when the banking-reporting season kicks off next month.