Banks and other financial institutions were caught mis-selling Payment Protection Insurance (PPI) to people who simply didn’t need it – which meant the product they had bought wasn’t worth the paper it was written on. After years of costly PPI compensation payouts, it looked like the Government had finally drawn a line under the scandal with legislation that stopped new claims after the end of August last year. Now a new nightmare has emerged for the banks and other financial institutions that sold PPI after a series of important court rulings that mean millions of Britons could be entitled to a second wave of lucrative compensation – dubbed PPI 2. But a Daily Express investigation reveals today how the banks are unfairly trying to use their financial clout in a desperate bid to stop this new tsunami of claims.
Experts believe anyone who was denied a payment, received only partial refunds or has never claimed, can demand all their money back in a new compensation gold rush, regardless of whether the products – commonly sold in the 1990s and 2000s with loans, credit cardsand mortgages – were appropriate for them or not.
One law firm, Manchester-based MoneyPlus Legal, says it is currently processing a staggering 13,000 PPI 2 cases. A spokesman said: “We’ve picked up a wide variety of claims from those customers who had a claim refused originally, to the people who weren’t given a full refund to those who hadn’t made a claim the first time around.”
This second wave of PPI payouts has come about because banks were not only mis-selling insurance products to cover repayments in case of illness, disability or redundancy to people who would never be able to claim, but at the same time were taking secret eye-watering commissions of up to 95 per cent.
I T IS these undisclosed commissions that have put the financial institutions back in the compensation dock. It is estimated that, on average, their commission charge was a staggering 69 per cent of the total cost of the insurance product.
Banks are now trying to stop millions of these new claims coming forward from customers by deliberately ramping up court costs with expensive barristers, appealing decisions to prolong the process, and trying to gag successful claimants.
Andrew Settle, managing director of Joseph James Law in Milton Keynes, told me: “The way the banks behaved originally in charging these extremely high secret commissions was bad enough, but the way they are now using their financial advantage to fund expensive legal teams to try to defeat millions of new legitimate claims is another shocking development in the whole PPI scandal.
“This isn’t customers trying it on, this is customers who the courts have ruled have been unfairly taken advantage of. Rather than doing what most would see as the right thing and paying back the money, they are pursuing every possible legal angle to try and defeat legitimate claims.”
PPI scandal: A second wave of compensation claims could be on the way
Unlike the first wave of PPI claims, these new compensation payouts cannot be brought by commercial claims firms. They have to be brought by law firms because they must be lodged in court. The average claim in these new cases is thought to be about £4,500 with the total bill faced by banks and financial institutions, again, estimated to be in the billions.
Claims solicitors insist they will not be put off but admit it is frustrating.
Mr Settle said: “The banks know if they take the unusual step of hiring a barrister to fight a claim in the Small Claims Courts, we have to hire a barrister as well to make it a fair fight.
“This obviously makes it more expensive for us to run the claim on behalf of our clients. The banks will know that under Small Claims Court rules, even if you win the case you cannot claim all of your costs from the other side. I am aware of some solicitors being unwilling to pursue claims on behalf of clients as they cannot afford the costs.
“Even when the banks lose, in many cases, they are not accepting the decisions and are appealing those cases to a higher court. This adds another huge level of expense for us, because it originally started in the Small Claims Court so our client, again, cannot claim back all of their costs if we win.”
Martin Richardson, director of legal services at MoneyPlus Legal, believes one way to level the playing field would be for claims to be heard under the fast-track court system – rather than the Small Claims Court – which would mean the loser pays the winner’s legal costs.
He said: “In fast-track cases, the winning party can recover legal costs. This is not the case in the Small Claims Court where only a small amount of fixed costs can be recovered.”
PPI scandal: Tory MP Kevin Hollinrake wants claims to be settled in court to ensure a fair process
Many of the claims are against banks that are partly state-owned, such as RBS and Lloyds. When settled out of court, banks are generally agreeing terms under a deal known as a “Tomlin order” which prevents successful claimants from revealing the details of their payout.
This is to try to discourage further claims. This issue has come to the attention of Tory MP Kevin Hollinrake, co-chairman of the All Party Parliamentary Group on Fair Business Banking. He agrees that, if banks won’t play fair, claims should be heard under the fast-track court system.
He said: “This is about an inequality of arms. The fast track system where the loser pays the winner’s costs would act as a deterrent to banks.
“When it comes to ‘Tomin orders’, you have to ask why the banks don’t want this information to come out. It’s clearly because they don’t want more claims to come forward.
“A principle of British justice is that things are heard in the public arena to help prevent these practices in the first place.”
The new wave of PPI claims is being brought under the Consumer Credit Act 2006 which is not covered by the legislation that the Government introduced to bring an end to PPI claims.
PPI scandal: Banks have already paid out £38 million in compensation
The latest set of claims stem from a court case bought by widowed college lecturer Susan Plevin in 2014 who had PPI added to her loan by a lender called Paragon.
The total charge for the insurance policy was £5,780 but 72 per cent of that wasn’t insurance at all – it was commission payments to the broker who arranged the loan. The Supreme Court ruled in Mrs Plevin’s favour that this was “unfair” and Paragon was ordered to pay back her PPI.
Nearly two years later, the Financial Conduct Authority ruled banks and financial institutions should pay back any amount of undisclosed commission that was more than 50 per cent.
But in a second landmark case brought by Christopher and Joanne Doran, Manchester County Court ruled in July 2018 that they were entitled to the whole of their PPI costs back, plus interest, amounting to a total of more than £17,000, on the basis that they would never have bought the insurance had they known how much commission they had been charged.
So anyone who had PPI running from 2007 – when the Consumer Credit Act came into effect – but hasn’t made a claim, is now likely to be owed compensation. Crucially, even customers who had a PPI claim rejected are likely to be owed compensation because they were unaware of the commission.
Mr Richardson added: “Many people believe the first wave of PPI helped revive the economy after the 2008 recession because people suddenly went out and bought new cars and holidays. Strangely, with the uncertainty we face in the light of Covid-19, PPI 2 may well be good timing again as we help people wrestle the money they are owed from the banks.”