Talks between banks and FSA to put an end date to PPI claims

| February 21, 2013
PPI Claim

PPI Claim

Amidst the rising cost to banks of PPI claims, the British Bankers Association (BBA), the Financial Services Authority (FSA) and major banks are in talks to discuss a potential deadline for PPI claims. Potentially set at April/May 2014, the BBA is suggesting that in return for ending PPI claims, the FSA would like bank led public information initiatives to inform the public of the end date.

The FSA is reportedly sympathetic to the banks’ concerns that the number of claims will endless if left unchecked. Indeed, the financial industry is keeping a watchful on the financial ‘health’ of the major banks as the bill for PPI claims keeps on rising. However, the FSA has to balance banking concerns with consume rights, and giving customer access to compensation.

PPI was sold to customers as a way of protecting borrowers from events such as illness or redundancy. It was revealed, however, that millions of customers were actually mis-sold PPI, and were therefore unable to claim the insurance they expected. Since the scandal emerged, the banks, working to FSA guidelines, have been settling claims with currently over two million customers, and have cooperated with both the FSA and the claims courts. Many claims management companies (CMCs) having been lodging claims on customers’ behalf, taking up to 25% of successful claims

Recent figures have shown that the total bill for PPI claims has far exceeded the original estimate of 6billion. In response, the major banks have increased their compensation funds; Lloyds Banking Group, for example, recently added ?1 billion, taking its compensation fund to 5.3 billion. However, Lloyd’s chief executive, Antonio Horta-Osorio, has been outspokenly critical of false PPI claims, condemning such a practice of CMCs in a letter last year to the Justice Secretary.

Lloyds and the other banks pay a fee to the Financial Ombudsman Service (FOS) for administering a claim. Although most claims are settled in the consumers favour, according to Mr. Horta-Osorio around a quarter of PPI cases are false, and up to 50% of claims brought by CMCs were groundless. In his letter to Mr. Grayling, he stated that while Lloyds was happy to pay the FOS costs for valid claims, he believes that CMCs should pick up the costs incurred by false claims they lodge.

Mr. Horta-Osorio echoes the worries and sentiments of the banking industry, who have also cited false CMC claims as a compelling reason to put an end date on PPI claims.

The talks deciding this matter are ongoing and in early stages. Insiders say that a number of options are being discussed. It is likely, however, that a consensus will be reached to put an end date on PPI claims.

Talks between banks and FSA to put an end date to PPI claims

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