Three million in the queue for compensation over PPI mis-selling

Nearly three million people who took out payment protection insurance (PPI) sold by banks and other lenders could be in line for compensation totaling more than £2bn after the Financial Services Authority today issued new rules on how firms should handle the flood of complaints over mis-selling.

The Financial Ombudsman Service revealed that it had received more than 100,000 PPI complaints already, with nearly 2,000 received in the last week alone.

The FSA is concerned that too many consumers are being forced to take their case to the ombudsman rather than finding resolution from the bank when they first complain. It said: "FSA data [received from 18 major sellers of PPI] shows that on average, firms reject almost half of the PPI complaints they receive, but some reject nearly all. Around 30% of rejected complaints go on to the ombudsman, where more than 80% are overturned in the consumer's favour," it said.

The regulator now estimates that the number of complaints about PPI will rise dramatically to around 550,000 a year for each of the next five years, and today set out new procedures on how banks and other lenders should approach the issue. It added that some lenders will contact people who may not have complained, but who might still have been sold a policy wrongly. Last year, firms were told to re-open 185,000 old complaints they had previously rejected.

"We look forward to consumers being treated fairly whether they are buying or complaining about PPI," said Dan Waters, the FSA's director of conduct risk.

PPI has become one of the biggest areas of enforcement activity by the regulator since a Guardian investigation first exposed in 2004 massive mis-selling of the product by firms enjoying profit margins of 80% or more.

PPI is sold to customers to protect them if they default on a loan, mortgage or credit card debt when they are made redundant or fall sick. But the investigation revealed that millions of people had been sold over-priced policies where making a claim was in some cases virtually impossible.

In September 2005 Citizens Advice made a "super complaint", calling for an Office of Fair Trading investigation into the PPI business, which at the time had an estimated 20m policies in force and produced annual revenue in excess of £5bn for the banks and other lenders.

Citizens Advice debt policy officer Peter Tutton said: "We welcome the fact that the FSA is taking firm and appropriate action to get to grips with the harm done to consumers by widespread mis-selling of PPI over many years. Evidence from our CAB network has consistently shown that too often consumers have been mis-sold PPI policies that are far too expensive and completely unsuitable for their needs, often contributing to debt problems.

"A huge step to restoring consumer confidence is ensuring that people who complain get a fair hearing and proper redress. Up until now, firms have too often handled complaints very badly, so FSA action to spell out to firms what is expected of them was absolutely necessary."

Source: Guardian - August 2010

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