The History of PPI
What has become known as one of the biggest financial scandals to ever plague the British banking system didn’t happen with the blink of an eye.
Truth-be-told, this super-sized scandal that has affected so many countless people was actually brainstormed and methodically planned out. Here is a look at the history behind this huge British banking scandal.
What is PPI?
PPI, the acronym for payment protection insurance, is a type of insurance that was intended to protect borrowers.
Basically, those who took out credit cards, mortgages, car loans or any other type of loan were offered this insurance as a way to protect them, should they fall into a financial predicament and not be able to make payments on their debts.
Should a borrower become ill, injured or unemployed, the company that provided the insurance would make minimum payments on the loan that the insurance covered.
These payments would be made for a pre-determined period of time and would provide a cushion, of sorts, in a time of trouble.
The PPI Scandal Arises
What seemed like a good idea turned into a big scam. Many British banks began to realize that they were actually making huge profits off of the sale of payment protection insurance.
As a result, these banks concocted a plan to earn ever more money from the sale of payment protection insurance. They would not fully inform consumers of the stipulations associated with PPI that would allow them to be eligible for coverage.
This mis information led to countless people purchasing the insurance who were actually not eligible to receive coverage. In addition to those who were not fully informed of the guidelines for coverage, many people were sold the insurance without knowing it.
These people were paying for an insurance that they never even knew that they purchased.
Since so many people were mis-sold payment protection insurance, the Financial Services Authority (FSA) stepped in and filed complaints against the banks that issued mis-sold PPI.
The banks turned around to reject the claims, which resulted in the FSA issuing fines that resulted in millions of pounds.
The complaints were so large and the totals were so high that the banks finally admitted their error and started setting aside money to rectify what they had done wrong.
To date, it is estimated that a total of £14 billion pounds have been set aside to cover the PPI claims that are made against the banks, for mis sold ppi.
PPI & Looking Forward
While the British banks that were involved in the mis-sold payment protection insurance scandal have admitted their error and have set aside billions of pounds to repay those who were involved, there doesn’t seem to be a sure end to this scandal in sight.
More and more PPI claims are filed each day as even more people are found to have been affected by the scandal. It will take years before these mis-sold PPI claims are settled, which will likely results in countless billions of pounds in repayment.
How much money the banks have set aside for PPI Claims?
As of March 2013, 14 banks have set aside a total of nearly £14 billion pounds to help address the number of PPI claims they expect to come in.
As time goes on, it is expected the banks will put more money aside to compensate the customers who were mis-sold payment protection insurance.
Which banks were the biggest mis sellers of PPI?
The banks mis-selling PPI include:
- Lloyds Group
- Nationwide Building Society
- Royal Bank of Scotland
Lloyds Group has contributed the largest amount of money, putting £6.7 billion pounds aside to compensate customers of: Lloyds TSB, Black Horse Finance, Bank of Scotland and Halixfax.
At the end of 2012, Lloyds Group had spent £4.3 billion pounds on settling PPI claims—700 million of which was spent on administration. In the last quarter of 2012 alone, they spent £200 million pounds a month on settling complaints.
The banking group has more than 6,000 employees dedicated to processing PPI claims. In February 2013, they received a £4.3 million pound fine for delaying PPI compensation to 140,000 customers.
The banking group is in the process of notifying their customers who may have been mis-sold PPI coverage.
HSBC has added another £199 million pounds to the funds meant to compensate customers, bringing its total to £1.5 billion pounds. £757 million pounds of this amount has been claimed by customers.
The bank has a staff of 700 members dedicated to processing PPI claims, who are also still in the process of contacting customers who may have been affected.
The Spanish bank – Santander put aside only £538 million pounds to cover compensation to customers of Abbey and Alliance & Leicester.
The provision has not been increased since July 2011, because it only had 6% of the total PPI market.
Nationwide Building Society has provisioned £173 million pounds to help cover the cost of compensating customers.
As of September 30, 2012, this accounted for less than two percent of the total industry provision amount. Nearly half of complaints received come from customers who were never sold a PPI policy.
The Royal Bank of Scotland (RBS) has put aside £2.2 billion pounds to cover compensation to customers who were mis-sold PPI with NatWest, RBS, Churchill, Mint, Direct Line, and Lombard.
Customers of these companies have been able to claim £1,300,000 pounds so far.
Approximately 1800 staff members are processing complaints. Over the second half of 2012, 51% of NatWest customer complaints were successful. 45% of complaints with RBS customers were approved as well.
Barclays has provisioned 2.6 billion pounds across all of its brands including Barclaycard. Of this they have spent £1.6 million pounds settling claims. 10 to 15% of this amount was used to cover administration costs.
The company says that about half of the PPI Reclaim cases it receives are invalid. Nearly 2500 staff members are working on resolving PPI cases.
The company also says they are most of the way through contacting customers to mail been involved in mis-sold PPI and is finish was expected to finish in June 2013. No word is available on whether or not they actually reached this goal.