The PPI Scandal – How did it happen?

Britain's banks were found to have been selling 'ineffective but highly profitable Payment Protection Insurance (PPI) for more than a decade.

Lloyds Banking Group decided to set aside a whopping £3.2bn to compensate customers who were mis-sold payment protection insurance.  This has revealed the full extent of a scandal dating back over ten years. The provision following a court ruling that customers could claim compensation on PPI policies dating back many years. This allowed 3 million people to make claims totalling £4.5bn. PPI policies have been sold alongside mortgages, loans and credit cards since the 1990s. They were supposed to repay people's borrowings if their income fell because they became unemployed or ill.

Critics argue that the banking industry began selling PPI to customers after realising that the policies were highly profitable. The complaints increased throughout the 2000s, and in 2004 the Guardian revealed that many banks were returning just 15% of their PPI income to claimants, making PPI much more lucrative than any other type of insurance. Barclays and HBOS, the latter now owned by Lloyds, were both shown to be making huge profits from PPI, prompting Vince Cable, who was then the Liberal Democrat Treasury spokesman,  to demand an investigation into "inflated premiums and anti-competitive behaviour".

The following year, Citizens Advice increased the pressure with an investigation that labelled PPI a "protection racket". It was claimed that it was:

Expensive – with premiums often adding 20% to the cost of a loan, and in the worst cases over 50%.

Ineffective – structured to limit the chances of a payout to someone who was genuinely ill.

 Mis-sold – without the customer's knowledge, or sold as "essential", or sold to people such as the self-employed who would never be able to claim.

 Inefficient – with claimants facing lengthy delays or complicated claims procedures.

The Financial Services Authority made addressing PPI one of their priorities in 2005 when it took over the task of regulating the general insurance industry. The FSA then wrote to the heads of Britain's banks about the issue. The FSA began imposing fines for mis-sold PPI in 2006, starting with a £56,000 penalty for the Regency Mortgage Corporation. Recently, the FSA said, had sold PPI to "right-to-buy" mortgage customers who would not have been able to claim, or who already held insurance. Liverpool Victoria Banking Services were also fined £860,000 in 2008 for adding PPI to many customers' loans without their knowledge. Alliance & Leicester was fined £7m, with the FSA ruling that its staff had been trained to "put pressure on customers" who questioned the inclusion of PPI in their quotation. The FSA also banned one of the worst types of PPI in 2009 "single premium", FSA made a firm stance against the sale of PPI and those who took advantage of it. The Office for Fair Trading became involved in 2007 and quickly referred PPI to the Competition Commission after OFT head John Singleton concluded that "the evidence as a whole suggests consumers get a poor deal".

Personal finance campaigner Doug Taylor said: "We've always known that people were being mis-sold PPI, but we were still amazed to discover the scale of it. It appears that salespeople are chasing their commissions, their bosses are chasing profits – where's the sense of responsibility to the customer?"

The FSA estimated that around 3 million people could be eligible for PPI refunds, worth a total of £4.5bn. Lloyds stated that around a third of the PPI market, followed by Royal Bank of Scotland with 18%. The size of Lloyds's provision suggests that the total PPI bill could now be close to £10bn.  Analysts at Deutsche Bank estimated on Thursday that the total industry cost would be £8bn. The figures are huge and there is still time to claim back tax that was sold alongside PPI.

If you have been mis-sold PPI, click on the button below to start your claim!

Click here to claim your PPI Refund!

Published on 06/05/21