5th December 2011
Stuart Bell is one of the North East’s most established financial experts with a career spanning nearly 40-years in financial services and the international business arena. He founded Real Time Claims in 2007 to help ill-informed consumers reclaim money that was rightfully theirs. Here, he explains what the mis-selling of PPI means to the people of the North East and what the next move may be for banks.
Coming from a financial background and having numerous contacts both within business and within the financial industry, it was becoming increasingly apparent to me that much of the money that banks and financial advisors were making came from the high commission from selling PPI (Payment Protection Insurance).
In 2006 the Competition Commission estimated that there were over 20 million PPI policies in existence and between 5million and 6million policies have been sold each year since.
Several respected financial sources have estimated that up to 70% of these policies may have been systematically mis-sold and will never pay out in the event of a claim.
Many people are walking around blissfully unaware that they have been sold and are paying for expensive policies that were attached to their loan or credit card at the point of sale without their knowledge. The selling of insurance products at the point of sale in this way will be illegal from 6th April 2012. Others have no need for the cover provided, if for example, they are entitled to generous sick pay from their employer or have other means of paying their monthly bills in the event of sickness or accident. Many customers were not eligible for a policy in the first place, due to being self-employed, working less than 16 hours per week, having a pre-existent medical history or being a student, for example.
The banks have finally admitted that the majority of PPI policies were miss-sold and that the premiums, along with associated interest and compensation should be refunded. They have had to set aside a £10billion fund to settle eligible refund claims.
With the North East making up 4.3% of the adult population, that means there is potentially £430million pounds worth of unclaimed money available to customers in the region.
PPI has been described by the media as one of the greatest rip-offs by the financial industry over the last couple of decades. Today, complaints to the Financial Ombudsman Service about mis-sold PPI have increased ten-fold and averaged 900 a day in the first quarter of the financial year, and enquiries are increasing every day.
But if banks have made this mistake and have to fork out in compensation, the question we must ask is how will they make their money back again? Most likely they will be gearing up to pile on new charges for their customers as they look to recover their losses. The price of mortgages and other loans could be set to rise again, savings rates cut and even the imposition of charges for customary ‘free current-account’ services could be considered.
There is a limit however to how much money the banks can recover through higher loan or lower savings charges. We must be mindful that the knock on effect of PPI compensation is somewhere along the line going to lead to current-account charging.
People should be urged to check their loan documents and credit card statements for mis-sold PPI and seek advice on claiming back what is rightfully theirs. It may also be a good idea to check with their banks and raise their concerns about potential charges planned for current accounts.