UK Bankers Score Own Goal Over PPI Mis-Selling Ruling by High Court

UK bankers have scored another spectacular own goal with their failed attempt to over-turn rules governing the mis-selling of PPI.

PPI stands for Payment Protection Insurance, a financial product commonly sold by banks, card issuers and other lenders to customers taking out loans or credit card agreements.  The idea is to provide insurance against the possibility of the customer becoming unable to meet their repayments, for example if they are made redundant.

That sounds like a pretty good idea, especially in uncertain times when economies are faltering and job security is threatened.  It actually IS a good idea; we all need to take responsible action to ensure we live within our means and can meet our financial obligations.  The problem arises from lenders who ruthlessly push PPI products onto their customers without explaining what it is and how much it will cost.

 Many hapless customers have discovered that they have being paying a premium for a policy they could never successfully claim on due to exclusions in the terms and conditions.  Others didn’t even realise they had agreed to buy PPI at all.  PPI has in fact become the most complained about product referred to the UK Financial Ombudsman.

The rules, laid out by the Financial Services Authority (FSA), aim to protect consumers from this sort of PPI mis-selling.  The new, stricter rules were introduced in the UK in December 2010, and required that lenders explain the key features of the PPI policy, and ensure that they understand that it is optional.

The bankers, under the banner of the British Bankers’ Association (BBA), objected to the new rules and launched a High Court challenge back in January.  Their main fear was that the rules could be applied retrospectively, leading to massive payouts to customers. 

Unfortunately for the BBA, the High Court last week announced its decision to overturn the bankers’ objections.  They will now have to change their selling practices to ensure they are fully compliant with the FSA guide-lines.  What’s more, after all the media coverage and adverse publicity stirred up by this case, they can be sure that they will be facing more complaints than ever before. 

The deluge will probably begin with the scores of consumer complaints put on hold by the banks while the judicial review ran its course. The FSA estimates the new rules will lead to PPI providers being forced to pay out up to £1.3bn in compensation for new complaints received during the coming five years, and up to £3.2bn as a result of reviewing previous PPI sales and pro-actively contacting customers to offer them redress.