Hot Features
Premium
Register for Free to get streaming real-time quotes, interactive charts, live options flow, and more.
Lloyds (LSE:LLOY), RBS (LSE:RBS) and Barclays (LSE:BARC), always leaders in the banking industry are leading it in an unenviable and potentially disastrous category: PPI miss-selling complaints.
The complaints
The FSA reported this morning that overall complaints had risen a whopping 129% in the first six months of 2012. With more than 2,230,000 complaints in the first half year, the largest number ever recorded, consumer watchdog “Which?” CEO, Peter Vicary-Smith, has pronounced the PPI debacle “the biggest financial scandal of all time.” During the previous six-month period, July 2011 through December 2011, the number of complaints lodged with the FSA was ‘a mere’ 977,000. To put the number of banking complaints into perspective, the FSA has been receiving complaints at the rate of one every seven or eight seconds.
UK Banks have already paid out over £9 billion in restitution to customers who were ‘miss-sold’ PPI. Given the substantial increase in complaints, there are rising concerns that the banks have not set aside enough funds to cover the complaints. Across the banking industry, some £10 billion have been put in reserve to cover previously anticipated complaints. However, at the rate complaints are not being registered, ‘Which?’ calculates that Lloyds will run short of its set aside in about 40 days, followed by Barclays in December, RBS by June 2013, and HSBC by August.
The Scam
One report summed up the way the banks would publicly describe selling PPI as “Policies were designed to cover repayments on loans and credit cards if borrowers were made unemployed in specific circumstances.” If you have never believed in marketing spin before, this is a perfect example. It is simply absurd to believe that the banks sold PPI for any reason other than their own benefit. The concept was certainly not a friendly gesture designed for a customer’s benefit — that’s just the way it was sold. Do you really think that the banking guru’s are sitting in their offices trying to think up ways to help customers? Really? They are sitting there thinking up ways to make more money for themselves — and their easiest mark is YOU!
PPI insurance favours the banks, not the consumer. It sounds like ‘forgiveness’ for your debt when it is sold. It is not. It is an insurance policy that pays the bank in the unlikely event that you are not able to. Sure, it would feel good to not have to pay some debt if you become sick or unemployed, but often the stipulations make it impossible to obtain any relief.
No doubt, the sale of the PPI hits the banks’ P&L as 100% profit until claims are made as an expense against that line item. This help to improve the appearance of the banks profitability for shareholders, and it also, therefore, may potentially fatten the bonuses of the management and executive fat cats.
Compounding the scam, i.e., that you are paying for an insurance you may never or may never be able to make a claim against, the street-level bank personnel are incentivized to sell the product. Pushed to sell it, in fact. This leads to misrepresentation of the actual benefits, or lack thereof. In many cases, the insurance was sold to people who could not possibly be eligible to ever make a claim. It was not there job to qualify people. It was there job to sell the product.
The Tangled Web They Wove
The rising number of claims is due to the natural order of things. Almost every customer who purchased PPI eventually comes to the conclusion that they deserve a piece of the pie. Lawyers, eager to build their reputation and their bank accounts, determine to get a piece of your piece of the pie by offering to help you get the money due to you. Perhaps you had thought about making a claim, but decided it wasn’t worth the hassle. But you have seen and heard those lawyers’ ads. You think, “They’ll take the hassle out of it,” but you forget that they’ll also take a chunk out of it. You still can’t win.
The Only Happy Ending Is a Disaster
We all want to see the banks get their come-up-ance. And it looks like that might actually happen. But when the banks collapse under the weight of all the punitive response, we’re not going to stand up and cheer. We’re going to do things that people normally do when they are very unhappy and simply can’t take it anymore. That’s not a pretty thought.
It might not be the total solution, but if the execs gave up their bonuses completely – even gave back some that they have taken, and applied those millions against the claims, it might be enough to take some of the sting out of what they have done to us.
In the meantime, let’s hope and pray that some of these people know how to manage their banks out of this crisis situation.
