PPI compensation payments set to continue ‘for years’

Banks will be paying compensation to people mis-sold payment protection insurance (PPI) for years to come, according to the UK’s chief financial ombudsman.

The Financial Ombudsman Service receives 4,000 new PPI cases a week, and Caroline Wayman, the chief ombudsman, said “it will be years” before anyone can truly say Britain’s biggest ever financial mis-selling scandal is over.

The ombudsman service steps in to resolve disputes between financial companies and their customers, and to date it has received more than 1.25 million PPI complaints, most of which have come in the last two years.

Banks and other financial institutions pushed PPI policies alongside loans and other credit deals with the promise that payments would be covered if borrowers found themselves unable to work. But in many cases, exclusions meant customers could never make a claim. The cost of the scandal is estimated to have reached £24bn, with barely a month going by without a high street bank announcing it is setting aside yet more cash to cover claims.

Publishing its proposed plan and budget, the ombudsman service said 2014-15 was “proving to be another challenging year”, and that while 4,000 new PPI cases a week was down from a peak of 12,000 in late 2012, this was still twice as many as all the other areas of complaint put together.

The ombudsman service expects to resolve around 320,000 PPI cases this year, and then some 250,000 in 2015-16. “As we work through the unprecedented number of PPI cases we have received over the last few years, it is clear that we will still be dealing with the fallout of PPI for several more years yet,” the service said.

Fee-paying “packaged” current accounts are another product attracting significant levels of complaints – currently around 300 a week, compared to around 50 a week in mid-2014. These accounts, which typically charge a monthly fee for benefits such as travel insurance, mobile phone insurance and card protection, have become a big moneyspinner for the banks, but concerns have been voiced that some financial institutions may have been mis-selling them.

A spokeswoman for the ombudsman said: “Even though we expect the number of packaged bank account complaints to grow, we do not expect it to reach anything like the scale of PPI.”

The Financial Ombudsman Service has doubled in size over the past two years, and has now revealed plans to recruit a further 200 adjudicators and ombudsmen. However, it said that, largely as a result of the hundreds of millions of pounds it would cost to meet “the PPI challenge” over the next few years, the service was in the unusual position of expecting to make a significant loss. It believes that by the end of 2017-18, its financial reserves will have plunged to around four months’ worth of operating expenditure, and said: “This position is clearly not sustainable – which is why developing a new operating model is one of our key priorities.”