The Financial Conduct Authority (FCA) urges the industry to fund an ad campaign to induce an influx of new PPI claims before the deadline of 2019.
A £42m ad campaign is launched on the 29th of August 2017 – which will give the people exactly two years’ time to file for their PPI claimsbefore the cut-off point.Britain’s banks are expecting a steep increase in the number of complaints about payment protection insurance (PPI) policies. This ad campaign is being funded by the top 18 banks of UK.
The FCA expects that this imposition of the deadline will help the financial industry to reclaim its esteem after the condemnation due to the PPI scandal. According to the reports of New City Agenda – a think-tank and an established forum for the Financial Services Industry, this scandal has made the industry to keep a separate fund of more than £43bn for the PPI compensation.
The top for banks – Barclays, Royal Bank of Scotland, HSBC and Lloyds Banking group have kept aside £6.5bn funds to cover claims in the future. Lloyds Bank declared in its interim results this month that the unused £2.6bn of its £18.1bn contingency amount was “consistent with total expected complaint volumes of 5.3m, with approximately 1.2m still expected to be received, including approximately 9,000 reactive complaints per week through to August 2019”.
RBS – owned 71% by the taxpayer, has £1.1bn yet to be used and HSBC has $1.1bn (£860m). Barclays has £2.1bn yet to be used. They had set aside £9.1bn for the PPI compensation. They say that it is “best estimate of expected PPI redress”.
Barclays also said in its interim results about the impact of this ad campaign starting from 29th August 2017. They saidthat it is “uncertain but has been considered in Barclays’ provision estimate”.
More than £40bn has been set aside by the UK Banks for PPI claims. Lloyds is the one with the largest amount of £18bn.
The total amount set aside for the PPI claims include the expected cost of managing and settling all the claims. Initially, it was estimated that only 3 million people were affected, however, the current figure is 12m. According to a tally collated by FCA £27.4bn compensation claims have been received so far.
Lloyds started to pay out claims in May 2011, they hoped that £3.2bn which they had set aside for the compensation would be sufficient to handle such a scandal. The amount has gone up to £18bn for Lloyds alone.
According to Ian Gordon, an analyst at Investec, parts of unutilized provisions were “an estimate of full future redress costs through to August 2019. Will that be enough? My guess is no, but almost enough”.
He said, “Most of us have been wrong here many times before” so he added that an extra £1bn may be needed for the compensation across the industry.
Up to 60mpolicies were sold, while most of them were sold before 2005. Till now 12m people have filed for PPI compensation claims. It is expected to be between 20m to 24m policies as some customers may have more than one policy.
Andrew Bailey – the FCA head, supported the decision of not forcing the banks to write to their customers and instead of waiting for the customers to file for the claims. He told the Mirror, “We don’t believe this would work. How many times have you ignored a generic letter through your door?”
Bailey also said, “Most of us see reminders every day of the PPI scandal from calls on our phone and adverts in newspapers. Yet there remains a large number of people who may be entitled to complain but have not yet made a complaint.”
Nick Baxter, who is the independent chair of the Professional Financial Claims Association, said that the FCA data of £24.7bn was paid out “presents the illustration of progress but we’re only part way there”.
This is because the FCA data is all inclusive of the amount. It doesn’t show as a separate amount which the customers receive as an interest and the premiums which are being repaid. Almost half of the total payouts is expected to cover the interest. Some estimate that the total misselling bill could go up to £100bn.
The National Audit Office estimated that the claims management firms have bagged approximately £5bn by helping the customers reclaim theirPPI compensation. This amount is a good percentage of the total compensation received by the customers.
The deadline of 2019 is a second opportunity for some customers to receive compensation. 1.2 million Customers were rejected previously from receiving a compensation. Now, it is said that they may have some other grounds to file a complaint.
According to a crucial court ruling in 2014, which is named after Paragon customer Susan Pelvin – customers can claim for the commission they have paid when they were sold the PPI.
The FCA declared that if the commission was 50% of the total cost of PPI, compensation can be paid to the customers. As per Moneysavingexpert.com, more people would be able to claim for compensation as the commission was 67% of the total value of the policy.
Dominic Lindley, policy director at New City Agenda, said that the deadline to make a claim for the compensation will be before April 2019 as 5.5 million people have already contacted their banks for the compensation.