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The Financial Services Authority (FSA) and Office of Fair Trading (OFT) have cooperated to prevent future payment protection insurance (PPI) mis-selling scandals. While banks made record profits by selling PPI products, many UK consumers are finding that it is very difficult for them to collect on their claims. Regulators continue to educate the public about the fraud involved with mis-sold PPI and are enforcing new guidelines to prevent future banker misconduct. Record Profits for Selling PPI An estimated 7 million PPI policies are sold each year for covering loan repayment in case of accident, sickness or unemployment. High street banks have made record profits due to mis-selling PPI. Bankers are experts at identifying income and asset levels to determine whether financial instruments are affordable for consumers. Many banks have been found guilty of selling financial instruments and buying credit default swaps against those loans in order to profit when the customer defaulted. PPI was very profitable for bankers because of "compound interest." It was easy to place additional fees on loans. When added on top of monthly payments and interest, PPI charges created massive profit margins for bankers. Some PPI was paid upfront - in what was called the "single premium policy" - these were the most profitable for banks. Bankers, insurance providers and third-party sellers used many strong-arm tactics, unethical schemes and high pressure techniques to sell PPI. Salesmen were given targets and paid large commissions for successful PPI selling rates. There was no effective monitoring or training in some instances. Unbearable Economic Burden Financial instruments must fit the economic conditions of the consumers who purchase them. Many banks sold products that created an unbearable economic burden on patrons. Some of the prime targets for mis selling PPI were people beyond retirement age, those with bad credit and low income customers. Fewer PPI Claims Honoured As the economic depression has continued, more consumers are making claims and finding that the PPI coverage is inadequate. While car insurance pays out three-fourths of the time, PPI claims are only honoured one-fourth of the time. Some people were not covered when they continue to receive state benefits, making their policies invalid. Policies typically cover consumers for a limited amount of time. After spending so much for PPI, many consumers don't think it is fair that they are not covered when they really need it. FSA Fining Banks for Mis-Sold PPI The FSA has discovered that there was widespread PPI mis-selling. Once the housing market collapsed in 2008, the FSA started fining major high street banks for their illegal activity spanning back to 2005 in mis-selling PPI. Most PPI was sold at the point of contact when the loan was made, so there was little competition. There are extensive exclusions listed in the terms and conditions, which were not properly explained to consumers. In short, people who were not eligable for a ploicy was sold a policy, resulting in a potential claim for mis-sold PPI. New FSA and OFT guidelines demand that bankers provide more information on PPI coverage's. They also permit consumers to compare PPI coverage. With court victories and fines, the regulatory agencies hope that the high street banks get the message. If banks refuse to process claims , then consumers can contact the regulatory agencies.
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