It’s a date that some in Britain have been dreading, but that for others can’t come too soon. No, not 31 October, the Brexit date, but 29 August – the final deadline for complaints about payment protection insurance (PPI).
At 11.59pm this coming Thursday, the UK’s financial regulators will bring down the shutters on Britain’s costliest ever consumer scandal.
At the latest count, £36bn has been paid out by UK banks to compensate people who bought often-worthless insurance cover thinking it would help them repay debts in the event of sickness or unemployment.
Of that, £2bn was paid between 1 January and 30 June this year. The total bill has hit £48.5bn once administration costs are included – five times the cost of the London 2012 Olympics, according to the thinktank New City Agenda.
And with an official “now is the time to act” advertising campaign in full swing, and claims management companies engaged in a final push to grab a share of the spoils, those numbers will almost certainly rise.
It is not just the claims firms – which have pocketed billions of pounds of the compensation paid to victims, and in many cases have plagued millions of people with spam text messages and nuisance calls – that stand to lose out from the end of this “gravy train”.
There is an argument that the payouts resulting from the scandal – which at one point averaged £2,750 a head – have amounted to a sizeable fiscal stimulus that has helped keep the wheels of the UK economy going over the last decade.
In many cases, that handout of free, no-strings cash has been a welcome windfall that has been quickly spent on a holiday or home appliances, put towards a new car, or used to pay for home improvements or weddings. And at one point the boom in jobs linked to the processing of all those claims registered in the official labour market statistics as one of the fastest growing areas of employment.
In early 2014, the then economics editor at the BBC, Robert Peston, wrote that one of his “nagging worries” about the British economy was: “What happens when the PPI payments stop flowing?”.
Well, we are about to find out.
As many as 64 million PPI policies were sold in the UK, mostly between 1990 and 2010, and some as far back as the 1970s – but very often this cover was mis-sold. Banks and other financial institutions pushed the policies alongside loans, mortgages, credit cards and other deals, with the promise that they would pay out if borrowers found themselves unable to work owing to illness, injury or redundancy. However, in many cases, the policy exclusions meant customers could never make a claim. The most frequent exclusion was “self-employment”.
The final deadline for complaining about the sale of PPI is 29 August 2019. Anyone who has not complained to their provider by that date will not be able to claim money back.
Banks have been repeatedly forced to announce they are setting aside yet more cash to cover claims. Lloyds Banking Group has been hit with the biggest bill: to date, just over £20bn.
With days to go until the deadline, last week saw a late flurry of activity as genuine claimants finally got around to submitting their complaints, and others tried their luck. The Financial Conduct Authority (FCA) – which has been running a major campaign to raise awareness of the deadline – said that in the last eight weeks it had experienced a 420% surge in website activity and a 269% increase in calls compared to the previous eight weeks. Lloyds revealed late last month that while it had been fielding about 70,000 pre-complaint information requests relating to PPI each week, that had leapt to around 190,000 per week.
The banks have railed against speculative claims, but on Friday the Competition and Markets Authority rebuked RBS and Santander for failing to send annual reminders to customers about their PPI policies and their right to claim.
Even dead people are eligible to make a PPI claim: solicitors dealing with probate have been asking the relatives of deceased individuals if they wish to take action on that person’s behalf before the deadline. Any payout would then become part of the dead person’s estate. Meanwhile, the official receiver is pursuing outstanding compensation payouts in respect of bankrupt and insolvent individuals to ensure creditors receive what they are owed.
The deadline is aimed at drawing a line under the scandal in order to rebuild public trust in financial services and reduce uncertainty for banks and other companies worried about the open-ended nature of potential PPI liabilities.
But the claims management industry is furious, and believes many consumers will miss out on the chance to reclaim what is rightfully theirs. Last week, the Alliance of Claims Companies (ACC) trade body attacked what it claimed was an “artificially enforced deadline put in by the FCA to protect the banks”. It said an estimated £50bn of PPI policies were sold, and that while £36bn had been paid out in redress, around half of that was interest. “Even allowing for the fact that some PPI policies were not mis-sold, you can see that this scandal is nowhere near over, and billions of pounds remain with the banks and lenders and not with consumers,” said the ACC.
Emma Stranack, the lead for the FCA’s PPI deadline campaign, said “now is the time to act,” and that it had extended its helpline hours to 8pm on weeknights and 5pm on Saturdays: “Ultimately we don’t want the UK public to miss their chance to decide.”
What’s the next big claim?
Call up one the biggest PPI claims firms – The Claims Guys – and its automated phone system soon reveals where the next bonanza in payouts may lie. Press two, it says, for claims concerning “packaged bank accounts”, three for “payday loans”, or press four if your complaint stems from an “investment product”.
As the PPI finale approaches, the claims management firms have been trying to fill the void and keep at least some staff employed. What they’ve been searching for is systemic mis-selling, which is why “packaged” accounts could be the next big thing. These were bank accounts that offered “free” travel or phone insurance, car breakdown cover, and other “benefits” – all for a £10-£13 monthly fee.
The problem for the banks is that years ago, when these were being heavily sold in branches, staff rarely took the trouble to ask whether those signing up could actually use the benefits, or already had cover for things like breakdowns. Someone without a car or phone, or who rarely travelled abroad, was clearly wasting their money paying for such an account, and may have a case against the bank. The sums will be smaller than for PPI, but a claim’s a claim.
Similarly, prior to 2013, most independent financial advisers received commissions for selling investment and pension products to consumers. If claims firms can prove that the IFA sold clients the investment that made them the most commission, rather than the product that was most suitable, they have a potential refund.
Next up is payday loans, although this looks more difficult. Customers who signed up for short-term, high-cost loans were often sold them on the basis that they would borrow £100 and pay back £150, when they should have been told the real annual percentage rate (APR). Those who took multiple loans may have significant claims – if the provider is still around. Wonga blamed a surge in claims, in part, for its collapse.
Other areas that the claims firms have moved into is EU airline delay compensation, which is worth €250-€600 a passenger, and which – depending on how Brexit works out – may or may not have a future.
Finally, there is always the old favourite: personal injury claims. Expect more calls to your mobile commiserating with you after your car accident.