The great bank protection racket - July 2010

Banks flout official warnings and fob off 300,000 complaints from customers mis-sold payment insurance

More than 300,000 borrowers a year are being denied refunds totalling thousands of pounds for rip-off payment protection insurance (PPI) because greedy banks are still automatically rejecting complaints.

Banks are blithely ignoring orders from the City watchdog, the Financial Services Authority, which slammed lenders ten months ago for refusing to compensate customers who were mis- sold PPI.

The FSA complained that too many people were forced to take their case to the independent Financial Ombudsman Service for a fair decision.

Expectant: David Patterson is due to receive a final payout from Firstplus this month, after complaining to the Ombudsman about his mis-sold PPI policy

Yet the Ombudsman, which settles disputes between consumers and banks, still receives a staggering 1,000 complaints a week about PPI and upholds about 90 pc of cases in favour of the consumer.

Ombudsman spokesman Emma Parker says: ‘Banks still need to improve the way they handle PPI complaints.

We will continue to work with the regulator where we see banks treating customers unfairly.’

Consumers who complain to the Ombudsman receive an average refund of £3,000 from their lender, although some borrowers with larger loans have received up to £25,000.

However, only 16 pc of people whose PPI complaint is rejected by a bank take their case to the Ombudsman, which suggests banks are successfully fobbing off an estimated 260,000 customers.

Vera Cottrell, of consumer champion Which?, says: ‘Our biggest concern is that some of the most vulnerable consumers, who need the money the most, will not take their case to the Ombudsman and not receive a refund.’

Which? is also concerned that too many consumers are persuaded to employ costly claims management companies to deal with their complaints, instead of taking their case to the Ombudsman for free.

PPI is supposed to cover repayments on credit cards and loans if the borrower loses their job 41or becomes unable to pay — but the policies are often overpriced, riddled with exclusions and mis-sold to people who would never be able to make a claim.

Adding PPI to a £7,500 five-year loan could cost the borrower an additional £3,000. Any borrower who was told PPI was compulsory, or was self-employed, unemployed or covered elsewhere, was probably mis-sold and should be able to reclaim the cost of premiums from their lender.

Earlier this year the Competition Commission announced customers would have a seven-day cooling-off period to prevent banks and building societies pushing PPI on to customers when they applied for credit.

Ms Cottrell says: ‘Banks have been warned countless times by the FSA and the Ombudsman about PPI complaints and it is incredibly disappointing that they are refusing to implement the FSA’s guidelines.

Banks are wasting everyone’s time by automatically rejecting so many complaints — the vast majority of cases should not have to go to the Ombudsman.’

The FSA has already fined 22 firms over poor PPI sales practices, including a £7 million fine to Alliance & Leicester in 2008 for serious failings in its telephone PPI sales.

The Ombudsman also wrote to banks back in 2009 to criticise their ‘poor complaints handling’ and urge them to consider refunding customers who were mis-sold.

The FSA is now expected to publish tough new rules for banks within the next couple of months on exactly how they should process PPI complaints.

A spokesman for the FSA says: ‘We remain firmly of the view that the PPI market is broken and needs to be fixed. We are committed to bringing about genuine, lasting change, and the package of measures we hope to finalise this summer will go a long way to address this.’

Source: Daily Mail - July 2010

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