The FCA have won their case against the banks and other finance lenders who will now have to review all their payment protection insurance cases and see if there is evidence of mis-selling. As well as any fines the FCA my, or have imposed, the banks will have to compensate the customers and return their premiums. Whether the premiums have to be refunded by the insurance providers is moot - at least the banks will lose all their commission earnings from mis-sold policies. The total cost to the banking and insurance industry is estimated to be about £4.5 billion!
A good product mis-sold
Payment protection insurance is actually in principle a good product! The policy protects the policyholder should they lose their income due to accident, sickness or unemployment. Unfortunately the banks realised what a powerful position they were in when their customers approached them wanting a loan e.g. a mortgage and virtually forced them to take out mortgage protection insurance - the salesmen were on a commission basis and were encouraged to sell, without checking whether the customer could actually claim under the policy!
The insurance broker
Many insurance brokers do not offer payment protection insurance, regarding it as the province of banks and building societies and financial advisors. Those that do so would, as professionals, ensure that the customer's needs were met and recommend the most suitable policy for them. Policies available through brokers are much cheaper than through the banks (commission is lower!).
At the moment the FCA is increasing contributions to the Financial Services Compensation Scheme to cover compensation for mis-sold PPI policies. There is naturally resentment amongst brokers that they are having to contribute towards a debacle of which they were not a part. BIBA is organising a petition to Parliament to have this reviewed.
No doubt the public will feel wary against taking out this type of policy in the future. The banks and finance companies have been banned from offering it at the point of sale however it is likely that customers will not seek out to obtain quotes as most will perceive it as a worthless product.
It is only when they lose their jobs that they will realise they were wrong.
For more information contact JB Portwood john.portwood#portwood.co.uk