Financial Ombudsman Service has upheld nine out of ten claims, with compensation payments averaging £2,750
Hundreds of thousands of people have won compensation for mis-sold payment protection insurance, with banks paying out £557m in the first six months of the year alone, according to new figures.
The Financial Ombudsman Service (FOS), which rules on complaints about the controversial insurance that have been rejected by the banks, has seen the number of cases it has become involved with climb to more than 3,000 a week in the last two months.
It has upheld nine out of 10 PPI cases in favour of consumers, with compensation payments averaging £2,750. Payouts vary from £200 to more than £10,000.
The number of complaints has been so high that the FOS may have to take on more staff. “These numbers are pretty unsettling for us,” Natalie Ceeney, chief financial ombudsman, wrote in the organisation’s latest newsletter.
In total 532,000 people made a complaint about PPI in the first half of the financial year. The insurance, designed to provide cover in case of illness or redundancy, was sold alongside financial products, often without customers’ knowledge, and rarely paid out.
The high street banks were told by the Financial Services Authority in May to speed up compensation payments after they abandoned a court challenge that had stalled claims. The banks dealt with the bulk of the 200,000 claim backlog by the end of August, the deadline set by the FSA, paying out £230m in compensation that month alone.
According to FSA rules, complaints should be dealt with within eight weeks, although this does not include making a compensation payment. In one case, Mark Southee, a freelance technical writer, made a claim through a claims management company and received a letter from Lloyds TSB in August offering him about £13,000 of compensation, but he has yet to receive the money. “Eighty work days since Lloyds TSB said they’d pay my PPI claim ‘shortly’ – it seems the Lloyds TSB team are just telling people deadlines to get them off their backs,” he said.
A Lloyds spokesman said the bank was complying with FSA rules and processing all claims within 28 days, but had encountered a one-off processing issue recently and was “working extremely hard to clear that backlog”. Lloyds, the biggest seller of PPI following its takeover of HBOS, set aside £3.2bn to cover claims in May while Barclays set aside £1bn and HSBC made provisions for £270m. The banks face bills of more than £5bn to compensate customers and cover the adminstration costs involved.
Ceeney said: “If all this means we’ll need significantly more resource and capacity to handle ever-higher numbers of PPI complaints, then we need – now – to build this into the plan and budget we’ll be consulting on in the new year.”
The FOS has 300 adjudicators working on PPI claims exclusively, but is recruiting more people. The big high street banks were expected to hire up to 6,000 workers to handle PPI complaints, with Lloyds bringing in 500 extra staff in May.
Some 80% of the complaints received by the FOS were brought by claims management companies, but Ceeney has warned that some of these firms charge up to a quarter of any resulting compensation in fees.
“It doesn’t improve your chances, and we are a free service,” an FOS spokesman reiterated. The average time it takes the FOS to resolve a complaint is three to six months, but the surge in complaints threatens to push this further out. About 90% of cases are settled through its initial decision, against which both sides – the consumer and the bank – can appeal.
Rising payouts for miss-sold PPI could prove a boon not just for consumers but the economy as a whole, by boostingconsumer spending.
Philip Rush, a UK economist at Nomura, said: “Once that money hits people’s pockets or their bank accounts, it’s fair to say that a fair portion will be consumed, particularly when their finances are otherwise squeezed.” He added that the type of people who took out those “obviously poor” policies tended to save less.
Source: Guardian
