. In the first quarter of this year alone, the economy of the United Kingdom rose by 0.8%, the most we have seen in a long time. To make this even better, the European Commission has projected that the UK will experience at least 2.7% growth this coming year. As we continue to pull out of the recession, the number of new loans will increase alongside growth. While great news for consumers, those seeking to get new loans could find themselves facing a new round of PPI mis-selling as loan volume increases.

In the first quarter of 2014, bank complaints fell by 15%. To make this even better, UK consumers have experienced a 22% decline in bank complaints related to improperly-sold credit insurance contracts.

While these numbers seem to indicate that bank complaints will continue to fall, the reality is that annual bank complaints are still 2.5 million per year. From a population of 62.2 million people, this means that an astounding 4.1% experience hardship severe enough to warrant a bank complaint. So while the declining numbers are a promising sign, they still do not indicate that conditions have substantially improved.

As far as PPI claims go, they still account for the majority of all bank complaints according to the Financial Conduct Authority. PPI accounts for 56% of all bank claims, down from 62% a year ago. Again these numbers look promising, but this still does not necessarily indicate a trend that will continue even into this summer.

Analysts are becoming increasingly concerned that PPI claims could start to rise this summer even despite these positive trends. A decrease in PPI claims is not necessarily tied to economic growth, and in fact could change inversely as economic conditions improve. As consumer demand increases, banks could become increasingly aggressive as they try to capitalize on a growing demand for their services. Since banks have paid a total of 13.3 billion pounds in PPI-related settlement claims since 2011, they have growing pressures to find ways to recoup these costs.

While claims could increase, they most likely will not manifest themselves in the same way that the did in the past. New regulations and an increasingly watchful Financial Conduct Authority will force banks to invent new tactics to sell PPI insurance. Rather than tying these insurance products to high-cost loans, analysts project that loan insurance could become increasingly common on smaller consumer loans and small business loans. With this insurance could come the same types of mis-selling practices that we saw in the past.

As PPI claims have been falling recently, it is important to note the potential reasons for this decline. As consumers find it increasingly easy to find work and their incomes rise, the immediate need to fall back on credit insurance policies decreases. This means that claims go down, but the problems aren’t realized until the economy begins to fall again. Once consumers again find themselves in need of the benefits from their credit insurance policies, only then will they see the problems associated with them.

This causes a potentially cyclical effect where consumers enter into predatory PPI contracts during good economic conditions, and only realize their mistakes during rough times. As consumers start to earn higher incomes this year, their propensity to take out new loans will increase. While this may have good short-term effects, in the long-run it could cause PPI claims to once again rise to their former levels.

This projected long-term rise could come sooner than consumers would like to believe. Despite strong growth in the UK economy, new home mortgages are down 11.9% from the beginning of the year. After several months of GDP growth, these numbers will begin to rise as consumers save for down-payments. With this growth, bank complaints will start to rise as consumers become increasingly likely to report on new predatory practices.

For these reasons, analysts are warning consumers that they should be especially wary this summer of banks pushing for PPI insurance policies to be attached to a loan. While in the past consumers only had to worry about these policies when getting an expensive loan, credit card companies and even landlords will likely start to push consumers to utilize them. With the economic difficulties just starting to subside, lenders will be looking for protection when things get rough.

Consumers should keep in mind that while PPI policies can help them get approved for a loan, their costs usually usually increase payments by 13-15% throughout the entire life of the loan. If they aren’t used, this represents a substantial loss. Additionally, PPI insurance plans usually fail to cover more than 12 months of payments, so they should be utilized with caution.

PPI News


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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.