The PPI Scandal and How it Grew
It all started in the 1990s. PPI began innocently enough. It sounded like a good idea. If a person got sick or laid off, PPI would make their loan payments. Whether it was a mortgage, credit card or other loan, PPI was designed to help people through difficult times.
Shortly after starting to sell PPI, the banks and financial institutions realized how profitable it was. In fact, the Guardian reported in 2004 that several banks were returning only 15 per cent of PPI money to people making claims.
Vince Cable, then Liberal Democrat Treasury spokesman, called for an investigation. Citizens Advice piled on with an investigation that concluded that PPI was an illegal “protection racket”. Opponents were upset about four elements of PPI. They said it:
–Was costly. Reports started to surface of claimants paying 20-50 per cent of the cost of a loan for PPI.
–Didn’t work. It was setup to make it difficult for people who were really sick to get their money.
–Was often mis-sold. Many people were told they needed to get PPI to get approved for a loan.
–Became unworkable. Claimants waited forever for news on their claim. Basic paperwork procedures were inept and ineffective.
It wasn’t long before the Financial Services Authority stepped in. In 2006, they started to levy fines for PPI mis-selling. Regency Mortgage Corporation, Liverpool Victoria Banking Services, and Alliance & Leicester all were hit with heavy fines for various PPI infractions. The FSA also banned “single premium” PPI outright.
The next year, The Office for Fair Trading got into the act. They determined there was enough evidence of wrongdoing to refer PPI to the Competition Commission.
Finally, a multitude of consumers understood the depth of the problem and began to claim compensation. Banks tried to push back, denying many claims. Ardent consumers pressed on. Those looking to make fast PPI claims went to the ombudsman for help ended up winning 75 per cent of their claims for compensation.
The FSA laid down new rules in 2011. They include:
–No PPI can be purchased until one week had passed after a loan was finalized.
–Costs and cover details must be given in writing.
–Consumers must be informed that PPI is not mandatory.
–Banks had to let consumers know the percentage of successful claimants.
The banks then had to face the prospect of re-opening thousands of claims, and locate other customers that were due compensation. Estimates are they will end up paying north of £10 billion once all is said and done.