Specialists are warning that the latest financial mis-selling disgrace could lead to even higher pay outs of up to £33billion.
As the demand for PPI (Payment Protection Insurance) compensation finally starts to fade out, an even larger mis-selling scandal threatens to shock and engulf the banking industry.
When consumers were sold PPI policies, they may have unknowingly been charged large commissions by their branches or brokers who sold them the products.
If decided that this is unfair practice, PPI compensation claims that were earlier over-ruled could now be lawful and due for a pay-out.
If applied, products like loans, insurance, store cards and car finance could lead to a whole new wave of consumer claims otherwise fairly sold could now be deemed mis-sold with a bill that could be even higher than the PPI tally.
It all centres on a court case that went as high as the Supreme Court when Mrs Plevin, a college lecturer, bought payment protection insurance after taking out a personal loan.
The PPI premium of £5,780 was added to the loan. From this, the client was told that part of this sum would be considered commission to the lending company.
Conversely, what she wasn’t told is that of the £5,780 charge to the loan, 71.8% was the commission. She also wasn’t told who would be receiving the commission…hope you’re keeping up!
In November 2014, the court ruled that by not telling Mrs Plevin the level of commission she was paying, or where the commission was going to, the 1974 Consumer Credit Act had been breached.
Bearing in mind, if the ruling is applied across the industry, the bill could come in at a staggering £33billion in expected compensation pay-out.
However, now it gets interesting! The decision does not comment on whether or not PPI was mis-sold – instead it addresses the commission payments and the breach of the 1974 Consumer Credit Act.
In theory, millions of bank customers who have had PPI claims rejected because their PPI was not mis-sold could now be owed compensation.
if the ruling is applied across the industry, the bill could come in at a staggering £33billion in expected compensation pay-out.
The FCA (Financial Conduct Authority) is reviewing the case and deciding how to act on the matter. We are expected to hear the results of the decision early next month (September 2015)
It will be nail biting times within the industry as we’ll get to know whether or not the banks will have to pay out more compensation and start the tedious reviews of previously rejected claims.
Well it completely depends on the side you bat for! If banks are told to pay out more compensation on commission payments that were not disclosed to customers, then millions of households across the UK could be set for an early Christmas present.
But remember, it won’t just be our UK households cashing in on this windfall. You’ll see Claims Management companies also looking for their share of the pie by encouraging their clients to seek compensation that there in entitled to.
No doubt another pay out would be damaging to our banks, but households that receive PPI windfalls often spend their compensation on new luxury items all of which contribute to the UK economy.
PPI policies were sold between 1990 and 2010 to millions of customers who took out loans or credit cards. This, in hindsight was supposed to be a good thing as it acted as a safety net for those who struggled or couldn’t repay their loan, or credit card.
Yet, millions of policies were mis-sold to customers, in some cases PPI was sold with loans without the customer even being told.
Remember…This latest court case does not centre on whether PPI was mis-sold.
Instead, the case looks at whether it was fair that Mrs Plevin ended up paying out so much in commission without realising.
So watch this space. The FCA will be making a decision next month – and depending on the outcome the floodgates could be open for more compensation claims.