Britain’s financial services industry regulator said yesterday it intended to set a 2018 deadline for retail borrowers to claim compensation for being mis-sold repayment insurance, drawing a line under Britain’s costliest consumer finance scandal.
Over the last five years banks have already set aside more than £28 billion to meet compensation claims from customers sold payment protection insurance (PPI) policies.
PPI policies were supposed to protect borrowers in the event of sickness or unemployment but were often sold to people who would have been ineligible to claim.
But the Financial Conduct Authority (FCA) said yesterday it planned to introduce a deadline for further PPI claims, as more than £20 billion has already been paid out to over 10 million consumers.
More than £20bn has already been paid out to over 10m consumers
“We take the view that a deadline ... would help bring finality and certainty in a way that advances the FCA’s operational objectives of securing an appropriate degree of protection for consumers and protecting and enhancing the integrity of the UK financial system,” the regulator said.
The British Bankers’ Association, which has been lobbying for a deadline, had no immediate comment.
The watchdog said it aimed to issue a consultation by the end of the year, and set the deadline two years from the rules coming into force. The new rules would not come in before spring 2016, so consumers will have until at least spring 2018 to complain, it said. Normally there is an automatic deadline of three years on complaints about financial products but none was set with PPI as many customers were unaware they had bought the product.
The watchdog said that it was an appropriate time to set a deadline as rules on PPI claims have been in place since 2010 and surveys showed most people were aware of possible compensation.
A deadline could help end some of the “inertia” being seen as some consumers are not bothering to make a claim, the FCA said. It could give no figures on potential remaining claims.
A high and growing proportion of PPI claims now go back a decade or more, with the evidence to back them becoming increasingly “stale” or patchy, the FCA said.
The FCA said that sales of loan insurance fell dramatically after early 2009 and the current rules and guidance about making a complaint have been in place since December 2010.
The regulator said the time limit would also apply to complaints being contemplated following a landmark ruling last year by the Supreme Court, which suggested there might be an additional cause for complaint.
The court found that Paragon Personal Finance breached the Consumer Credit Act by failing to tell a customer the charge for their policy included a big commission paid to Paragon and a broker.
If the ruling was applied to all PPI claims, banks may need to pay out billions of pounds more in compensation.
The watchdog will consult on rules and guidance about how firms should handle PPI complaints in light of the so-called Plevin judgment by the Supreme Court.