Essentially Home Loans Weblog

As many as 10  banks and lending companies will receive fines of as much as £1million for mis-selling of payment protection insurance (PPI) policies.

The Financial Service Authority’s (FSA) enforcement division will issue fines to banks for failing to provide appropriate information when selling PPIs to their clients.

One major infraction has been selling a PPI policy to a consumer who is not eligible for it at the time of purchase, because of age or self-employment.  Many of these policies add as much as one-third to the loan’s total.

Another practice the FSA issued fines for was taking the premium in one lump sum, rather than in installments.  There are no refunds for cancellation of the policy or early repayment of a loan, leaving the consumer to overpay their PPI.

Consumer groups are watching the FSA’s continuing investigation closely. A guilty verdict may open the door for compensation claims from customers who believe they were mis-sold a PPI.

This will hit banks hard.  The scale of the PPI products is a huge revenue generating machine for the big banks. Analysts predict that PPIs generate annual premiums of £5.5bn every year, equaling £200m in profits, for each of the big banks.

The number of current policies is a staggering 20 million.  If consumers file lawsuits based on mis-selling practices, the banks could face losses in the tens-of-millions.

Bad news for the banks, but good news for consumers, the industry is keeping an eye on developments and changes to PPI insurance policies.