Banks Running out of PPI Compensation

February 7, 2013

Barclays announced this week that it has set aside an extra £600m in compensation for payment protection insurance (PPI) provision. However, a Which! survey has revealed that if current pay-out rates continue, Barclays’ compensation fund will be only last until October of this year. HSBC funds will last until December, while Lloyds is set to run out in March. The total bill for the industry could end up as high as £25bn.

PPI is a form of loan protection that was sold along with loans, mortgages and credit cards and was supposed to protect people if they lost their job, fell ill, or if they had a sudden drop in income. However, PPI was mis-sold to millions of people, often by bank staff members working on commission and heavily promoting a policy to consumers who would never need the policy, or even if they did would have been unable to claim.

More than 2.5 million people have already received compensation, the average being around £2,750 for being mis-sold PPI.

Richard Lloyd, executive director of Which!, said, ‘Some banks have been in denial about the true scale of the PPI scandal. They must come clean about how many more PPI complaints they’re expecting, publish updates on the amounts that have been paid back, and claw back bonuses from executives who presided over this £13.6bn mis-selling fiasco.

‘The banks should be proactively contacting their customers and making sure it is as easy as possible for those with a legitimate claim to get their money back, without any hassle.’

Banks have asked that a deadline of April 2014 be made for people claiming compensation. The industry is concerned about claims management companies that have contacted millions of customers to persuade them to claim compensation for mis-sold PPI, whether they were sold PPI or not. The companies then charge 25% of the any payment made, plus VAT.

However, the Financial Services Authority has refused a deadline, saying a full public enquiry would be needed before that happened.