Taylor Scott
The Payment Protection Insurance (PPI) scandal is considered Britain's costliest consumer scandal, with UK banks refunding over £38 billion to 12 million customers. PPI was mis-sold to customers, who were told that their repayments would be covered if they fell ill, became unemployed, or passed away. However, in many cases, customers were unable to make a claim due to policy exclusions. While the deadline for PPI claims has passed, the discovery of unfair commission payments has opened a new chapter of PPI claims, and banks continue to face a backlog of claims.
| Characteristics | Values |
|---|---|
| Deadline for claiming back PPI | 29 August 2019 |
| Total amount paid by UK banks as of 2016 | £25 billion |
| Total amount paid by UK banks as of May 2020 | £38.3 billion |
| Total amount paid by UK banks as of July 2019 | £36 billion |
| Total amount paid by UK banks as of 2024 | £38 billion |
| Total amount set aside to compensate consumers and cover administrative costs | £48.5 billion |
| Largest amount paid by a bank | Lloyds Banking Group: £20 billion |
| Second-largest amount paid by a bank | Barclays: £10 billion |
| Third-largest amount paid by a bank | RBS: £5.3 billion |
| Average payout to claimants | £3,000 |
| Fine imposed on Clydesdale Bank by FCA for failings relating to PPI | £20,678,300 |
| Fine imposed on Lloyds Banking Group by FCA for failings relating to PPI | £117 million |
| Fine imposed on Regency Mortgage Corporation by FSA for failings relating to PPI | £56,000 |
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What You'll Learn
Banks fined for mishandling PPI complaints
Banks have been fined for mishandling PPI complaints, with the FCA issuing its largest-ever retail fine of £117 million to Lloyds Bank in 2015. This was due to their unfair treatment of customers when handling PPI complaints between March 2012 and May 2013. Lloyds assessed customer complaints related to 2.3 million PPI policies and rejected 37% of them. The FCA also fined Clydesdale Bank £20.7 million for serious failings in its PPI complaint handling processes. Other banks, including Alliance and Leicester, Capital One, HSBC Finance, and Egg, were also fined up to £1.1 million for their involvement in the PPI mis-selling controversy.
The PPI scandal has resulted in banks refunding over £38 billion to 12 million customers, with Lloyds setting aside the most money for PPI compensation at £12 billion. The deadline for claiming back PPI has passed, but complaints are still being investigated, and banks continue to make amends. The issue of tax on customer refunds has also caused some complications, as the statutory interest of 8% per year on PPI policies may be subject to income tax.
Customers who believe they were mis-sold PPI can initiate a claim by complaining to the bank, lender, or broker who sold the policy. Reclaiming PPI payments and statutory interest charges is possible directly or through a lawyer or claims management company. The PPI scandal has been described as the largest consumer redress exercise in the UK's financial history, with an estimated 64 million PPI policies sold to customers, mostly between 1990 and 2010.
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Customers forced to return payouts
The PPI scandal is the largest consumer redress exercise in the UK's financial history, with banks refunding over £38 billion to 12 million customers. The deadline for claiming back PPI was August 2019, and banks are still settling claims made before this date.
However, there have been instances where banks have demanded customers return payouts. In one case, Barclays demanded a couple return £14,739 paid to them four years prior, claiming they never should have received it. The couple had already spent the money on their business. After intervention from Money Mail, Barclays said the couple did not have to repay the money, as they were in fact owed £7,000 in PPI compensation and waived the rest of the cash.
In another case, a man was ordered to return £3,634 of £5,704 in compensation to Santander. The bank had discovered that he should never have been paid the money. The Financial Ombudsman Service has also ordered banks to repay customers after clawing back payouts, plus additional compensation for distress.
According to the City regulator, the Financial Conduct Authority (FCA), there are no set rules stopping banks from taking back payments, but they must treat customers fairly. James Daley, founder of consumer website Fairer Finance, believes that there could be tens or hundreds of thousands of people affected.
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Banks continue to settle with customers
The PPI scandal, which has been described as Britain's costliest consumer scandal, has seen banks refunding customers who were mis-sold PPI policies alongside mortgage, loan, finance, or credit card agreements. PPI, or Payment Protection Insurance, was intended to cover loan repayments for a certain amount of time if the borrower fell ill, lost their job, or had an accident that left them unable to repay. However, in many cases, the policy exclusions meant customers could never make a claim. The most frequent exclusion was "self-employment".
The PPI scandal has resulted in banks paying out billions of pounds in compensation to customers. By 2016, UK banks had set aside £40 billion to compensate customers who were mis-sold PPI. As of 2020, £38.3 billion had been repaid to consumers. The banks hoped that the PPI deadline of August 29, 2019, would bring the scandal to a close. However, the discovery of unfair commission payments has opened a new chapter of PPI claims, and banks continue to settle with customers.
The issue of unfair commission payments on PPI policies is not new. In 2014, a PPI claim from Susan Plevin against Paragon Personal Finance revealed that over 71% of the PPI sales amount was a commission, which was deemed a form of mis-selling. This case caused banks and the Financial Ombudsman to review even more PPI claims. The Plevin case also led to a change in FCA guidance, allowing customers to claim commission that accounted for over 50% of the price of the PPI policy, in what became known as the Plevin rule.
Banks continue to face a backlog of PPI claims, with many customers reporting that they have not heard from their bank about the progress of their claim. The COVID-19 pandemic has further delayed the resolution of these claims. In addition, banks have been accused of "snatching back" PPI payouts, demanding that customers return compensation that was paid out in error. In some cases, banks have discovered errors in payouts years after the money has been spent by customers. While there are no set rules preventing banks from reclaiming these payments, they must treat customers fairly in such situations.
The PPI scandal has had a significant impact on the banks involved, with some facing large fines and a negative impact on their earnings. Lloyds Banking Group has been the most affected, paying out more than £20 billion in PPI compensation and receiving a £117 million fine in 2015 for its handling of PPI complaints. Other banks that have been fined for their role in the PPI mis-selling include Clydesdale Bank, Alliance and Leicester, Capital One, HSBC Finance, and Egg.
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Customers can claim back unfair commission
The Payment Protection Insurance (PPI) scandal is the largest consumer redress exercise in the UK's financial history. PPI was often mis-sold to customers, with banks and lenders making outrageous sums from sales of PPI packages compared to the amounts paid out in claims. By 2016, UK banks had set aside £40 billion to compensate customers who were mis-sold PPI.
In 2014, a PPI claim from Susan Plevin against Paragon Personal Finance revealed that over 71% of the PPI sales amount was a commission. This was deemed a form of mis-selling, as the PPI-seller took unfair amounts of commission for the sale. The Plevin case caused banks and the Financial Ombudsman to review even more PPI claims.
In 2019, the Supreme Court ruled against Royal Bank of Scotland (RBS) in a case surrounding "unfair commissions", which could "widen the number of PPI mis-selling claims faced by lenders". The court ruled that the relationship between RBS and its former customers "continued to be unfair until their credit card agreement ended", meaning claims were brought in time.
The Financial Conduct Authority (FCA) introduced rules on the "fair treatment" of customers in 2015 if they complained about being mis-sold PPI. The FCA set a deadline of 29 August 2019 for making PPI complaints, and by April 2021, most of the complaints made before the deadline had been handled, with over £38 billion paid out in refunds to customers.
While the deadline for claiming back PPI has passed, customers can still claim if their PPI policy was sold after 29 August 2017 or if their complaint is about a claim being turned down by an insurer. They may also be able to make a complaint if they can show exceptional circumstances that prevented them from complaining on time.
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PPI refunds include interest charges
Banks are required to pay back PPI if a complaint about the mis-selling of PPI is upheld or if the firm that sold the PPI has agreed to compensate the customer. In such cases, the customer will usually be put in the financial position they would have been in had they not taken out the PPI. This is sometimes called general redress.
The tax deducted from the interest element of a PPI payout may result in the customer overpaying tax in the tax year in which they received the PPI payout. In such cases, the customer can claim a tax repayment. To support a tax refund claim in respect of PPI interest, HMRC now requires documentary evidence. This can include a certificate from the financial institution that refunded the customer, confirming the amount of tax deducted from the refund.
It is important to note that the deadline for claiming back PPI has passed. However, due to the discovery of unfair commission payments, a new chapter of PPI claims has been opened, allowing customers to make new claims.
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Frequently asked questions
Payment Protection Insurance (PPI) is an insurance policy that covers loan repayments for a certain amount of time if the borrower is unable to pay them back.
PPI was often sold to customers who would never be able to make a claim, for example, to self-employed people. Staff rarely asked whether those signing up could actually benefit from the insurance.
The deadline for customers to submit their claims was 11:59 pm on 29 August 2019. However, claims can still be made under very exceptional circumstances.
As of July 2019, UK banks have paid out a total of £36 billion ($44 billion) to compensate customers who were mis-sold PPI.
You can initiate a claim by complaining to the bank, lender, or broker who sold the policy. You can also contact a PPI claims firm or seek legal advice.
