PPI Complaints Reach Half-Million Mark
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UPDATED: Oct 24, 2012
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On Tuesday, Oct. 23, a record-breaking amount of complaints about the sale of payment protection insurance (PPI) was submitted to the financial ombudsman.
Over half a million complaints have been made by consumers to the Financial Ombudsman Service (FOS). The UK-based ombudsman service resolves disputes between financial institutions and their customers.
The FOS said it receives an average of 400 PPI complaints per hour. During the fiscal year, starting in April 2012, the FOS received over 140,000 PPI complaints. PPI has surpassed all competition in becoming the most complained-about product of all time. Second in rank are mortgage endowments, with 350,000 current complaints.
What is PPI?
PPI is also known as credit insurance. It ensures lenders that personal loans will be repaid if borrowers die, become sick or face unexpected job losses. PPI policies are typically taken out by consumers in conjunction with personal loans, car loans and mortgage loans in order to further protect themselves and their families. Some credit card companies have standard PPI in their agreements. For example, if a consumer requests a personal loan for the upcoming holiday season, banks can include a PPI in the loan for extra protection.
While PPI for personal loans is not exclusive to the U.K., consumer protection agencies in the U.S. have yet to receive the amount of complaints that the FOS has received.
One reason for the high level of complaints is the number of consumers who were sold PPI when they did not need or want the insurance. Unlike general insurance plans, PPI is not underwritten during the sales stage, and is often taken out without the consumer deciding if it suits the current loan. For instance, small personal loans are generally less risky than large mortgage loans, but these recent complaints reveal that borrowers have no choice in the matter. Many consumers do not even know they have PPI coverage for their personal loans until they receive a bill.
Solving the Issue
Some UK banks are handling the PPI complaints quickly and in favor of the consumer. Barclays Bank, Lloyds TSB Bank and MBNA Europe Bank are the most-complained about banks, yet they side with the consumer 93-97 percent of the time, according to Huffington Post UK. On Oct. 18, Barclay Bank notified consumers that £700 million (about $1.12 billion) were allotted for various mis-sold payment protections, PPI included.
The three major banks sides with consumers significantly more than average. Approximately 70 percent of PPI complaints were upheld in the consumers’ favor. Banks who received fewer complaints had fewer cases upheld against the bank. For example, Nationwide Building Society has seen only 18 percent of cases upheld against them in comparison to 93 percent for Barclays Bank. Overall, compensation averaged around £2,750 (about $4,400), according to Huffington Post UK.
“It’s extraordinary that we’ve received our 500,000th complaint about PPI — and despite these record numbers, this mis-selling scandal shows no sign of slowing,” Natalie Ceeney, chief financial ombudsman, said to the Huffington Post UK. “While it’s good news that more people know that they can come to the ombudsman, it’s clear that unless the banks sort out their complaints quickly and fairly, people will only face increasingly longer waits for justice.”
The ombudsman report that if PPI complaint rates do not decrease, the figure will be double the initial estimate of 165,000 complaints by April 2013.