Customer complaints over payment protection insurance (PPI) continue to rise after breaking records in the latter part of 2011. Total complaints to the Financial Services Agency (FSA) over PPI and other insurance matters hit 1,280,940 last year, the highest figure on record.

The £9billion PPI insurance fiasco accounted for about 85 percent of the complaints, just fewer than one million in all, registered last year. The insurance scandal affects millions of people across the United Kingdom.

Payment Protection Insurance

Payment protection insurance, also called credit protection insurance and loan repayment insurance, allows consumers to continue making loan payments in difficult circumstances. For example, if a borrower should suddenly become unemployed or unable to work due to illness, PPI would repay all loans covered under the insurance policy. Banks and credit cards offered PPI cover to customers as an added-value product.Generally, PPI plans only cover loan repayments for a set period that is typically 12 months in duration. After that period ends, the borrower is again responsible for making repayments of the covered loans.

Controversy

The PPI scheme soon ran into trouble due to the high percentage of customers with rejected claims. Companies often mis-sold the insurance to customers who should not have qualified for such cover. For example, the elderly and the self-employed were sold expensive cover without receiving any information about the insurance product.Before long, banks were flooded with call, emails and other complaints from customers who were often originally unaware that they had even purchased the policy.For years, banks and third party companies sold PPI cover to customers for high profits. The lure of the attractive commissions associated with PPI products induced firms to sell the policies to consumers without providing them with information about the cost of the extra insurance. In other cases, they reportedly pressured customers into accepting the PPI products.

New guidelines

In April 2011, the Competition Commission released new rules for curbing mis-selling of payment protection insurance policies. The guidelines required sellers to provide consumers with sufficient information about the nature and cost of PPI products.Insurance providers must now offer the customer a personal quote and they must review each policy on a yearly basis. Sellers can no longer sell PPI packaged together with loan products as they have done for more than a decade.

PPI compensation

Financial firms guilty of wrongful selling practices must now offer compensation to their customers within eight weeks according to a 2011 court ruling. The companies must pay customers “promptly” if requested. However, most banks have had trouble meeting these deadlines.Just about four of ten PPI claims are resolved within the eight-week period according to the FSA. Previously, the rate was seven in ten, but the recent deluge of complaints has bogged down the compensation process.In reaction to the massive consumer rush, the FSA has given some banks extra time to sort out customer claims.

Rise in complaints in 2011

More than 1.66 million complaints inundated banks, insurers and other financial firms between July and December last year, the FSA said. That represents a 21 percent jump compared to the first half of 2011. Customers prevail in about three of five cases, which is about a 51 percent increase over the situation of the previous six months. The British Bankers’ Association (BBA) is not happy about the situation and in May 2011, they stated that the organisation would appeal the High Court ruling that allowed for retrospective compensation.In the latter half of last year, the number of consumer complaints reached levels of about 12,000 a day. PPI-specific complaints rose during this period by 85 per cent to 977,510.

Consumers unaware or pressured

In most cases, consumers complained that they either were unaware of the PPI policy or that they felt pressured into buying the insurance.Lloyds TSB had the most complaints of any financial firm with 186,819 insurance and 51,586 banking complaints. Barclays followed with 146,316 complaints with Santander coming in third with 138,225.Barclays complaints rose from 251,500 from January to June in 2011 to 281,000 in the latter half of the year. The company said it was making progress though by claiming that complaints were down by 30 per cent.

Overall complaints down

Aside from the PPI claims, the overall number of complaints against banking firms was down in 2011, according to FSA sources. The inrush of PPI complaints also coincided with an increase in customer victories signalling that insuring parties are in a compensatory mood.State-subsidised Lloyds said that while it had the overall highest number of complaints, it also has more customers than its competitors. The bank said that its complaint rate was lower than that of other firms with 1.5 complaints per 1,000 customer accounts. Lloyds claimed the following rates for some of its main rivals: 3.7 per cent for Barclays, 2.3 for Co-op Bank and 4.6 for SantanderThe PPI problem has affected nearly all major banks and many have set up large funds to compensate aggrieved customers. Lloyds alone put aside £3.2billion last year and an estimated £9billion in compensation funds is available across the industry.

PPI refund management firms cashing in on claims

The recent uptick in complaints is partly the result of “PPI refund” management companies set up to help customers win their claims.The new firms are popping up all over the Internet, television and other advertising venues looking for new customers. The “ambulance-chasing” companies offer to help clients with their cases for a fee, usually about 30 per cent of any compensation received. The PPI claims management firms have themselves generated complaints from customers who tell of unsavory practices including lying about their services. The Ministry of Justice stated that it was investigating the matter


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Tim Capper reports on Financial Mis-Selling for Maple Leaf Financial. Our aim is to ensure you get honest advice and proper guidance to ensure a suitable recommendation can be made to pursue a financial claim


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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.