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Millions Could Receive PPI Payout

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As many as three million customers who took out credit cards or unsecured loans from 2005 onwards could collect compensation payouts running into four figures, although many might not know it and have yet to make a complaint.

A key High Court decision rejected a challenge from the British Bankers’ Association (BBA) and ordered the banks to review 1.5 million compensation claims so far for mis-sold payment protection insurance (PPI).

It means PPI could now generate more complaints than any other financial product ever sold.

At stake for individual consumers is a share of £4.5 billion which high street banks might eventually have to pay out for their mis-selling of PPI.

The potential bill is so huge that bank customers could be squeezed by higher fees and charges.

Campaigners, naturally, are cock-a-hoop at this latest victory in a long-running battle. Martin Lewis, at his website MoneySavingExpert.com, says: “Systemic mis-selling of loan and credit card PPI is one of the biggest financial services scandals ever.

And it just got tasty.

“The banks got a whupping in court. Banks were in the High Court to kibosh the regulator, the FSA’s attempt to make them contact people they’ve mis-sold to, even if they haven’t complained. But the judge kicked the case out.

“As this could mean shelling out £3 billion to three million people, banks are likely to appeal, which could sadly take years.”

More than 16 million PPI policies were sold - and the Financial Ombudsman Service (FOS) is receiving about 5,000 new claims each week. Its caseload on PPI rocketed from 833 cases in 2005 to more than 49,000 in 2010.

The FOS upholds the great majority of PPI claims, with an average payout of £2,750.

In theory, PPI pays out when borrowers lose their regular income because of accident, illness or unemployment.

Policies have been sold alongside mortgages, credit cards and unsecured loans, often with a lump sum premium added to the amount borrowed, so interest is charged on both amounts from the start of the policy.

Shane Craig at Paymentcare, an independent broker selling PPI, said: “If sold responsibly, PPI has a respectable role to play, particularly in recessionary times when circumstances for households can change drastically and without warning.

“For some people, PPI is an essential safety net. But the key distinction with our service is that consumers must voluntarily apply for a policy because they believe it is in their best interest.

“The mis-selling claims, by contrast, result when PPI policies are forced on to somebody - usually by providers of credit cards and unsecured loans.

“Invariably, these are consumers whose credit worthiness or financial stability is of a lesser standing, who often think there is no real alternative to taking a PPI policy.”

In tens of thousands of cases, however, PPI was sold to people who would not have been able to make a successful claim in any case: The self-employed, stay-at-home mothers and pensioners who would not be able to claim on a policy designed to cover unemployment.

In other cases, previous medical history would have invalidated claims arising from poor health. Some borrowers, particularly those with in-store credit cards, may not have realised they bought PPI by ticking a box.

In effect, the High Court decided that banks and other sellers of insurance had a duty of care to treat customers fairly and must contact consumers who may have been mis-sold PPI.

In the first instance, consumers who think they were mis-sold PPI should contact the organisation which sold them the insurance. If the claim is rejected, or no answer provided in eight weeks, consumers can go to the Financial Ombudsman Service.

In deciding their case, the ombudsman will focus on the sale process - whether providers met all their obligations in providing the right advice and explaining how the policy would work.

The ombudsman has criticised providers, and specialist claims management companies who take up cases for clients, for failing to address key issues.

To make the complaint by themselves, consumers can download a template letter from consumer group Which? at which.co.uk/ppi. A similar guide is available at www.moneysavingexpert.com.

The High Court decision could also boost the workload for claims management companies, which typically take a 25% slice of any payout, and often also an upfront fee.

At claims firm Brunel Franklin, managing director Sally Bowyer says: “The High Court decision is a triumph for consumers and for common sense. We always believed the banks’ legal arguments were flawed and we are pleased that consumers now appear free to claim refunds we believe they were always entitled to.

“Of course the legal process may continue with a further appeal. The net result of these expensive legal proceedings is that no stay exists on PPI cases, and consumers can continue to claim refunds against mis-sold PPI in the normal way.”

Bowyer maintains that specialist claims companies know best if a claim will succeed and how to push it through what could be a log-jam of cases.

“If a monthly repayment figure was quoted when you took a loan or credit card and the phrase, ‘you are fully protected’ or ‘it includes protection’ was used, there is a chance you may have PPI and were mis-sold it,” she says.

“Even if these phrases were not mentioned, it is still possible you have PPI which was mis-sold; check your paperwork as soon as possible on credit card agreements, loan agreements and agreements for any other finance taken out in the last six years.”

Brunel Franklin’s fee is 25% plus VAT on any successful claims. There is no fee on unsuccessful cases.

For its part, the Financial Ombudsman Service claims to have refined its documentation to speed its complaints procedure. It could be massively busy in this area for years to come.