Mis-Sold PPI: Why Did the Banks Take the FSA to Court?
Because of the intensive media coverage surrounding the mis-sold PPI fiasco, many consumers will be aware that the major high street banks failed to prove their case against the Financial Services Authority (FSA) in their recent court battle over the FSA’s new rules governing the selling of Payment Protection Insurance (PPI). This could mean that the nation’s financial service providers will end up having to pay back �10 billion in compensation. The problem now lies in the fact that the news agencies have moved on to the next big story leaving many consumers wondering why the legal battle arose in the first place, and what the results mean for their personal finances.
PPI is a highly controversial financial product that requires every consumer to pay an insurance premium in exchange for covering their debt repayments if they lose their income due to illness, an accident or are made redundant.
Many critics will say that PPI policies are over-priced and restrictive; it has also been proven that they are frequently mis-sold by financial companies who are in breach of the FSA’s rules regarding insurance sales. These conclusions are supported by statistics that were researched by the Financial Ombudsman Service, an independent complaints handler for the financial services sector. These statistics show that in almost 95% of all cases in where a consumer complains about their PPI, the insurance will have been mis-sold and the consumer is entitled to a full refund of any policy premiums they have paid.
Recently more and more mislead consumers have been claiming refunds of their policy premiums from banks and other financial services providers. The number of people making a claim for mis-sold PPI has increased and a rapid acceleration in the rate at which new complaints are being lodged has led to an explosion of PPI claims over the past 18 months. But, even though the banks are losing millions of pounds they are still reluctant to let any cases go to court because of a concern that a court ruling condemning PPI could set a legal precedent which would open the floodgates for everyone who has ever had a Payment Protection Insurance policy to demand an immediate refund. Instead, the banks have grudgingly accepted gradual changes in FSA regulations which have the effect of making it easier for consumers to make mis-selling claims. The banks have decided not to challenge these rules for fear of rocking the boat, which would lead to more payouts.
In late 2010, the FSA decided that too many consumers who had valid claims against PPI providers were not seeking the compensation they were entitled to, so they introduced some new rules which contained two groundbreaking provisions. Firstly, the new rule for mis-selling retrospective, which forces the banks to apply refunds to past sales. Secondly, all banks were required to conduct a thorough analysis of all past PPI sales to determine whether there were consumers who were at risk of mis-selling due to systematic failures and rule breaches, the banks were then required to write to these consumers inviting them to make a mis-selling claim. In response of the strong stance adopted by the FSA the banks mounted a legal challenge, arguing the new rules were unlawful because it was beyond the authority of the FSA to make retroactive regulations.
The case was scheduled for a Judicial Review in the High Court in which a judge was asked to consider whether the FSA had acted unlawfully or exceeded its legal powers. The banks used this judicial review as an excuse to freeze the processing of all PPI complaints for over 6 months, but in April 2011 the High Court ruled against the banks and ordered them to implement the FSA’s new rules. The banks then gave in one by one and announced that they would not appeal the initial ruling. As a result, the banks are currently in discussion with the FSA about how to implement the retrospective review requirements contained in the new rules. You should be aware that you do not have to wait for your financial services provider to write to you inviting you to make a complaint; if you have ever had a PPI policy and you believe that it may have been mis-sold to you, you should make a claim as soon as possible because you could be entitled to thousands of pounds in compensation.
If you would like more legal advice and information about mis-sold PPI please visit claimsfinancial.co.uk
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