PPI reimbursement will cost up to £3bn - Defaqto

clock • 2 min read

The FSAs consultation on Payment Protection Insurance (PPI) mis-selling has costly ramifications for the PPI industry according to financial research company Defaqto.

The regulator envisages, in a response to consultation document CP 09/23, that compensation for customers who have complained may cost the PPI industry between £700m and £1.2billion. Worryingly, the potential cost of reimbursing customers who have not complained could mean a further bill of between £1bn and £3bn.

Ben Heffer, insight analyst at Defaqto and author of Defaqto's PPI report said: "Given the scale of potential compensation amounts there is certain to be a lot of legal argument. The banks and lenders are not going to want to give up this much revenue without a fight and some respondents to the FSA have already challenged their authority to do what they are proposing.

"The FSA document is written in a tone which makes it clear that it has had enough and is really serious about shaking up the industry and making them sort themselves out once and for all. It is also clear that there is significant disagreement between the FSA and the industry.

"The calculation of how to compensate customers has been adjusted downwards by the FSA, so the amount that any one customer might receive will be lower than in their initial proposals.

"As long ago as 2005, Defaqto warned that there were problems with some PPI products and selling. Most unsecured loan providers have already exited the PPI market and we could be about to see the end of the PPI market for all products other than mortgages."

The FSA has announced a further six week consultation on its revised package of measures.

Dan Waters, the FSA's director of conduct risk, commented: "We're disappointed that the industry has responded so critically to our proposals but we remain 100 per cent committed to bringing about genuine, lasting change in the PPI market. We do, however, recognise the importance in ensuring that genuine concerns have been listened to.

"Our commitment, nevertheless, is evidenced by the fact that we have halted single premium PPI sales, taken enforcement action against 23 firms, issued two ‘Dear CEO' letters, undertaken three thematic reviews, conducted numerous mystery shops, and visited over 200 PPI providers. We remain firmly of the view that the PPI market is broken and needs to be fixed."

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