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At the time of writing, the banks are mulling whether to mount an appeal after they lost their judicial review against an FSA ruling on payment protection insurance (PPI).
It is a major blow for the banks with some estimates saying the ruling could lead to a huge £4.5bn bill as they will now have to contact all past PPI customers and invite them to complain if they thought they had been mis-sold the products.
It is unlikely there will be much sympathy for the banks though as the PPI mis-selling scandal has had a hugely damaging impact on the reputation of the financial services sector as a whole.
There have been more than 1.5m complaints made about PPI since the FSA took over regulation of the plans in 2005. According to the FSA, on average firms have rejected around 60% of complaints, but some dismissed almost all. However, the vast majority of complaints referred to the Financial Ombudsman Service are found in the consumer’s favour.
So what will be the impact on consumers of the banks’ appeal being thrown out of court? In the short term it is to be hoped this will accelerate the payment of compensation for many victims of PPI mis-selling. However, this may take some time yet as the banks are still deciding whether to appeal the judge’s decision.
Following the ruling, the FSA said it believes “the decision signals the end of years of poor complaint handling and will trigger a dramatic improvement in the way customers are treated”.
This may seem overly optimistic as the banks are still disputing the decision and are not happy about having to apply new standards to past sales.
According to Consumer Focus, there is also a lesson to be learnt for the FSA going forward and it must be given the powers to “root out bad products and practices at an early stage”.
We know the regulator will be getting involved in product design at an earlier stage but this is very different from monitoring whether a particular product is being sold correctly. There will clearly be no easy fix and no guarantees a mis-selling scandal on this scale will not happen again.
Katrina Baugh is editor of Professional Adviser and IFAonline.co.uk
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This Judgement will be Appealed
The banks clearly have a strategy and just as with the bank charges campaign it will be to grind their customers down. There is no doubt in my mind that the banks will appeal this judgement. Whilst this case is ongoing the banks have pleaded “sub judice” and refused to pay out on current claims. They have done this on all claims even if the case is unaffected by the current dispute. This is in contravention of the direction by the bank’s regulator the FSA to continue settling claims whilst this dispute is ongoing If the bank fails to settle their claim the customer does have the option to appeal to the Financial Ombudsman Service. However the banks know that currently only 4% of customers bother to appeal to the Ombudsman (despite the fact that the Ombudsman is currently finding in favour of the consumer in 9 out of 10 cases). A further reason for delaying settlement is the obligation of the banks to store financial records for a minimum of six years. The whole dispute between the BBA V FSA is on the obligation for the banks to check their records and inform customers of a potential claim. The longer this dispute goes on the more records of potential claims can be destroyed under the 6 year rule. At an average value of around £100 million a month there is every incentive to drag this case out as long as possible. Finally by delaying claim settlement the banks will be reducing the cash flow of claim management companies. This will reduce their advertising budgets and reduce the pool of informed potential claimants. If a customer feels that they have a potential claim they need to request copies of the original paperwork from the banks as soon as possible and submit their claim. http://www.blog.bank-charges-recovery.co.uk/
Posted by: anthony brennan