The sheer scale of the payment protection insurance (PPI) claims scandal is illustrated by the recent report that the total payout to consumers has now surpassed the £10billion mark across all the associated lenders. The figure was reached in April, 2013, when – in that month alone – over £420million was paid out to consumers claiming back mis-sold PPI fees. The Financial Conduct Authority (FCA) issued the figures with a proviso stating that the final amount will be far in excess of the amount reached so far.
24 Firms Involved
Although there are more than 20 firms involved in the PPI mis-selling scandal the majority of complaints refer to three of the biggest names in the consumer finance world: Lloyds Banking Group, RBS and Barclays are the major players in the saga, and have so far set aside billions of pounds in order to pay back the fees on mis-sold accounts. The move followed an instruction by the High Court that the lenders must pay back all such fees, and the resulting rush to claim has led to banks and lenders needing to take on outside help to process the claims.
Earlier this year the FCA held talks with industry leaders about the possibility of imposing a deadline for mis sold PPI claims; while many were in favour, others were against the idea, as they believed it would simply lead to a further rush of claims that would place a heavy burden on the already over-stretched claims procedure. Some banks, including Lloyds, have already been fined for delaying PPI compensation claims, and the Financial Ombudsman is dealing with record numbers of complaints pertaining to PPI claims and other financial gripes.
Using a Claims Company
The widespread publicity regarding the scandal has led to many consumers choosing to use a PPI claims company such as the PPI Claims Advice Line to pursue their claim, and this can be an efficient method of getting compensation. With many more claims to come and no sign of things slowing down, the lenders are bracing themselves for many more months of dealing with PPI claims and trying to restore consumer faith in the financial industry.
Over the past few years, there have been a record number of claims regarding scandals involving UK banks, causing the public to view them in a negative light. At the moment, the interest rate swap, the Libor scandal and the payment protection insurance scandals are all prominent, meaning that the banks are having to put increasing funds aside in order to compensate those who have fallen victim to mis-selling.
The newest scandal is that of mis-sold interest rate swaps, involving the mis-selling of derivative products to small businesses. Interest rate derivatives have the purpose of protecting small business against rising interest rates as the underlying asset is the ability to pay a set amount of money at a set interest rate. However, the concept is complex and as a result small businesses were unlikely to comprehend the implications of the products they had signed up for. There are requirements in place in order to regulate the selling of derivative products however, up to 80% of the sales of these products fail to meet the requirements. The result is that businesses have paid out more money to banks, without realising what they were signing up to or without giving permission to swap interest rates. UK banks have now set aside more than £2billion to deal with the expected influx of interest rate swap claims.
The PPI scandal has also escalated recently. Customers were given an option to insure themselves against an inability to repay loans, mortgages and the like, meaning that if redundancy occurred, repayments would still be made. Unfortunately, this too has also been mis-sold meaning that people have been paying for PPI when in actual fact they cannot claim on the insurance, or pressuring has occurred meaning that people have purchased PPI unnecessarily.
The Libor fixing scandal has been ongoing since 2005. Libor is the most crucial interest rate in finance as it underpins the majority of loans and financial contracts. In 2005 it as discovered that certain banks were trying to regulate the rate, by manipulating the rate it gave an inflated impression of the ability to raise funds. This has led to people losing money either through having to pay back more than required on loan or increasing bank fees as bank try to minimize their losses.
The recent scandals, which are causing banks to put aside millions of pounds in compensation, has dented the credibility of banks as well as escalated the economic crisis being felt worldwide.