Statistics from Britain's Financial Conduct Authority (FCA) reveal that over 4 million consumers have made complaints to financial institutions in 1H2018. It is believed that this figure has been impacted by the looming Payment Protection Insurance (PPI) claims deadline. Set for 29 August 2019, consumers now have just ten months to make a complaint to their bank. Yaakov Smith explains the significance of the impending deadline.
It is estimated that 64 million PPI policies were sold in the UK, but it's not known how many of these were mis-sold. PPI claims accounted for 42% of all the complaints made in the first half of the year. According to the FCA, the top four banks received the most complaints, with Barclays topping the list.
However, for complaints about PPI, Lloyds Banking Group has paid the most money to consumers. The British bank has set aside nearly £20bn to compensate consumers who were mis-sold the insurance. On top of this, the bank is expecting 13,000 PPI claims to be made each week leading up to the cut-off date.
The PPI claims deadline is affecting consumers, the banks and claims companies. Many UK consumers are happy about the deadline, and the end of cold calls and adverts, but those working in the claims management sector will have an important decision to make.
How have PPI claims affected the banks?
Since 2011, the banks have paid over £32 billion to consumers. When a claim is received by the bank, it has eight weeks to make a decision about the case. This means that it will take at least another two months after the deadline for all the money to be refunded.
In addition to this, thousands of cases are with the Financial Ombudsman for a final decision, and many more cases could still be referred. As such, we may not know the final figure paid by the banks until the end of 2019. Given the increase in complaints, it's possible that the banks could collectively repay nearly £50 billion for mis-sold PPI by the time the curtains close on the scandal.
As well as paying out refunds to customers, the banks have also contributed to the £42 million advertising campaign set up by the FCA. This money has been used to pay for advertisements featuring Arnold Schwarzenegger's robotic head, a dedicated PPI claims website, and a hotline, which consumers can phone for help with their claims.
Despite the billions of pounds paid by the banks, some continue to report profits. Other banks are still recovering from the hit, but there's no doubt that the deadline is welcomed by lenders — it's unlikely there will be another mis-selling scandal to such an extent in the foreseeable future.
What will happen to PPI claims companies?
When the scale of the mass mis-selling of PPI came to light, new claims management companies sprung up to handle the influx of new claims. Unfortunately for consumers, not all of these companies were registered or upfront about fees. Over the years, many individuals have been swindled out of money or inundated with cold calls.
Since then, a crackdown on rogue companies, in addition to newly-imposed regulations, means there are not many PPI claims companies left in the market. Those that remain have to operate a no-win, no-fee policy and cap their fees at 20% plus VAT.
With an end date in sight for PPI claims, many of these companies are looking for the next big area of the claims market to focus on. With recent attention given to payday loan claims, it's possible that some companies may turn to this type of claim. The majority are likely to stay in the claims management market, where they will find another mis-sold product, for which they can make claims to organisations.
Yaakov Smith is the founder and director of Logican.