PPI: The storm before the hurricane?

31 August 2011. Published by James Wickes, Partner

Yesterday the FSA announced the levels of redress paid by firms during the first six months of 2011 to consumers who have complained about mis-selling of PPI.

The statistics highlight that 16 firms, representing 92% of PPI complaints received in the first half of 2011, have paid a total of £215 million in redress between January and June. The figures include the value of ex-gratia payments made to complainants and cases settled by FOS.

The emerging pattern is unsurprising. There has been an exponential rise in the amount of redress paid by firms since January 2011.  In May and June alone, following the dismissal of the BBA’s judicial review, £102m was paid out.

Although the above figures seem high, we can confidently predict that the next six months will see an even greater hike in levels of redress paid out to customers.

It was widely reported that a number of firms decided to put some (or in a few cases all) of their PPI cases on hold when the banking industry mounted its legal challenge to the FSA's new complaint handling measures. The FSA's victory in April 2011 paved the way for millions of customers to receive compensation totalling billions of pounds. This led to the  banks setting aside £7.4 billion in provisions to account for their PPI mis-selling exposure, including a £3.2 billion provision by Lloyds Banking Group, a £1 billion provision by Barclays and Santander UK's recently announced (and what they accept as being a rather tentative) £731 million provision.

Six banking groups were given until midnight tonight by the FSA to resolve PPI mis-selling claims that were put on hold during the judicial review process. The six banks – HSBC, Barclays, Lloyds Banking Group, Royal Bank of Scotland, the Co-operative Bank and Egg – were granted the temporary extension by the FSA to ensure their backlogs of complaints were handled properly. The banks were required to send out letters telling people whether their complaints had been upheld or not, and, in the case of those individuals who were successful, at the very least provide information about how much money they were likely to receive.

Akin to an Outlook diary reminder, a day before the deadline, Margaret Cole, interim managing director of the FSA's conduct business unit, yesterday issued a stark warning to the industry, stating:

"The treatment of PPI complainants has left an indelible stain on the financial industry's record. By releasing these figures we're providing a useful measure of firms' progress that can be tracked on an ongoing basis…

We remain 100 per cent committed to ensuring that where consumers were mis-sold PPI they will receive the appropriate redress from firms, and we are monitoring firms' progress to ensure this is done properly… 

Where we find that this not to be the case, we are not afraid to take tough action."

It has been reported today that HSBC will miss the deadline because it has failed to tell all its affected customers whose claims have been successful how much compensation they are to be offered. There has also been speculation that another bank may also set to miss the target by a very small amount.

In the light of the FSA's warning that it is "not afraid to take tough action" against any firms that do not deal appropriately with complaints, it is possible that the banks failing to meet the deadline may be punished. Which? executive director Richard Lloyd said: "There's no excuse for banks not to have cleared the backlog of complaints caused by the judicial review. Any firms that have not met the 31 August deadline should face tough enforcement action."

It is understood that HSBC has pledged to have all its cases in order by the end of this week, so we will see just how tough the FSA are prepared to be with non-complying banks.

Firms will now have 12 weeks to handle any new complaints received before the end of the year. Complaints handling will return to the previous eight-week limit as of January 2012.

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