Banks have been routinely using a loophole that allows them to slash a customer’s payout by hundreds of pounds.
Victims of the payment protection insurance mis-selling scandal are receiving compensation payouts worth a fraction of what they had expected.
Banks have been routinely using a loophole that allows them to slash a customer’s payout by hundreds of pounds.
They do this by claiming that the customer has been sold the wrong type of PPI rather than that they were mis-sold the policy completely.
Poor payouts: Victims of the payment protection insurance mis-selling scandal are receiving compensation payouts worth a fraction of what they had expectedSoaring numbers of borrowers are turning to the Financial Ombudsman Service, which settles disputes between financial companies and customers, for justice.
Marc Gander, founder of campaigning organisation the Consumer Action Group, says: ‘Lenders have been caught out once already. Now they are quibbling about how much they should pay back.’
An estimated 46million PPI policies were sold to customers who took out loans and credit cards between 1990 and 2010. The cover promised to pay out if a borrower fell sick or lost their job. But in many cases policyholders were ineligible to make a claim at all.In April 2011, banks were ordered to pay compensation for widely mis-selling the cover after losing a legal battle with the City watchdog, the Financial Conduct Authority.
Since then, banks have handed out £18.8billion in compensation.
However, the total cost is likely to be even higher.
Complaints are flooding into the Ombudsman at rate of 4,000 a week.
Compensating: In April 2011, banks were ordered to pay compensation for widely mis-selling the cover after losing a legal battle with the City watchdog, the Financial Conduct Authority
In most cases lenders repay the full PPI premiums, plus interest of 8 per cent to mis-selling victims.
But by using the loophole, called alternative or comparative redress, they can slash these costs significantly. They can do this by arguing that the customers would have bought a different kind of PPI policy, rather than none at all.
As a result, they would have paid premiums for this. So the compensation they receive is the difference between the two rather than a refund of all the premiums they’ve paid.
The City regulator says that lenders are within their rights to do this. But the Financial Ombudsman Service says that in many cases customers are entitled to a full payout rather than the reduced amount.
A spokesman for trade body the British Bankers’ Association says: ‘Banks are determined that there will be no repeat of any of the bad practices which caused mis-selling in the past and have made appropriate changes.’
Source: Banks using loophole to pay PPI victims lower compensation payouts | This is Money
