Controversy was raised lately regarding the mis-selling of Payment Protection Insurance (PPI). These issues came about due to the failure of bank advisers to inform the customers that they are being issued the policy without informing them that it is non-compulsory as well as its other provisions.
The resulting fallout has not only continued to damage the banks' credibility in the eyes of customers, especially in the light of controversies over bankers' bonuses amid the recent economic slump. That's because the PPI scandal has also cost the banks plenty of cold, hard cash, with it being revealed at a hearing in January that the banks could be left some 4.5 million out of pocket simply as a result of implementing recent proposals put forward by the Financial Services Authority (FSA).
Those FSA guidelines, which came into force last December, called for banks to contact those customers who had potentially been mis-sold PPI and, if they had, to pay out appropriate compensation. That resulted in the launch by the industry - represented by the British Bankers Association (BBA) - of an ultimately unsuccessful High Court judicial review that aimed to alter the rules, which applied even in cases where no complaint had been made.
In that hearing, Lord Pannick QC, for the BBA, had told Mr Justice Ouseley that it would cost the banks an estimated 3.2bn to implement the proposals. That was on the basis that there would be a 20% take-up by those contacted who had purchased PPI policies since 2005. In addition, it has been estimated by the FSA that PPI providers may have to pay out as much as 1.3bn in compensation in response to new complaints received over the next five years.
The bank's challenge had been brought given the retrospective nature of the new rules, as they did not apply simply to complaints about new PPI policies taken out since December - something which Lord Pannick had described as "unlawful". Nonetheless, the BBA decided against an appeal after the rejection of their claim, with a series of banks subsequently setting aside money to pay out as PPI compensation.
Barclays, for example, announced in May after the April High Court decision that it would set aside 1bn to cover both customer redress and administration costs. The new chief executive at Lloyds, meanwhile, Antonio Horta-Osorio, confirmed that the bank would be ceasing its own battle with the FSA and increasing the amount that it put aside for PPI compensation to 3.2bn.
Another bank to confirm that it would not appeal the High Court verdict was Royal Bank of Scotland (RBS), which said in May that it would set aside some 850m to compensate customers that were mis-sold PPI. In doing so, the bank stated that it had an existing provision of 100m, and had already paid out around 100m in PPI compensation. The Co-op Bank, meanwhile, said that it had put aside 90 million for the purposes of PPI compensation.
According to some analyst PPI seems to be the biggest mis-selling scandal in the UK and will likely reach 8bn to more than 10bn against the original estimate of FSA's 4.2bn. This will clearly affect the bank industry tremendously.
The resulting fallout has not only continued to damage the banks' credibility in the eyes of customers, especially in the light of controversies over bankers' bonuses amid the recent economic slump. That's because the PPI scandal has also cost the banks plenty of cold, hard cash, with it being revealed at a hearing in January that the banks could be left some 4.5 million out of pocket simply as a result of implementing recent proposals put forward by the Financial Services Authority (FSA).
Those FSA guidelines, which came into force last December, called for banks to contact those customers who had potentially been mis-sold PPI and, if they had, to pay out appropriate compensation. That resulted in the launch by the industry - represented by the British Bankers Association (BBA) - of an ultimately unsuccessful High Court judicial review that aimed to alter the rules, which applied even in cases where no complaint had been made.
In that hearing, Lord Pannick QC, for the BBA, had told Mr Justice Ouseley that it would cost the banks an estimated 3.2bn to implement the proposals. That was on the basis that there would be a 20% take-up by those contacted who had purchased PPI policies since 2005. In addition, it has been estimated by the FSA that PPI providers may have to pay out as much as 1.3bn in compensation in response to new complaints received over the next five years.
The bank's challenge had been brought given the retrospective nature of the new rules, as they did not apply simply to complaints about new PPI policies taken out since December - something which Lord Pannick had described as "unlawful". Nonetheless, the BBA decided against an appeal after the rejection of their claim, with a series of banks subsequently setting aside money to pay out as PPI compensation.
Barclays, for example, announced in May after the April High Court decision that it would set aside 1bn to cover both customer redress and administration costs. The new chief executive at Lloyds, meanwhile, Antonio Horta-Osorio, confirmed that the bank would be ceasing its own battle with the FSA and increasing the amount that it put aside for PPI compensation to 3.2bn.
Another bank to confirm that it would not appeal the High Court verdict was Royal Bank of Scotland (RBS), which said in May that it would set aside some 850m to compensate customers that were mis-sold PPI. In doing so, the bank stated that it had an existing provision of 100m, and had already paid out around 100m in PPI compensation. The Co-op Bank, meanwhile, said that it had put aside 90 million for the purposes of PPI compensation.
According to some analyst PPI seems to be the biggest mis-selling scandal in the UK and will likely reach 8bn to more than 10bn against the original estimate of FSA's 4.2bn. This will clearly affect the bank industry tremendously.
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