Banks may be forced to pay a further £18bn to consumers in payment protection insurance (PPI) claims ahead of the August 2019 deadline, following miscalculations by the Financial Conduct Authority.
As banks begin to issue letters on PPI to consumers, legal precedent could see potential payouts soar, according to research from barristers’ chambers St John’s Buildings.
Following the landmark 2014 Plevin case, the FCA ruled that consumers are eligible for compensation on any PPI claim with commission above 50 per cent, with the average policy comprised of 67 per cent.
The research conducted by St John’s Buildings reveals that this 50 per cent ‘tipping point’ ignores the legal precedent. Appeals from the 2014 Plevin case have resulted in a ruling that banks are obliged to pay claimants the full percentage of their mis-sold PPI policies, including interest.
With the average commission percentage on PPI policies standing at 67 per cent, the legal ruling sees the potential exposure to the banks nearly quadruple. An estimated 50 million PPI policies have been sold since April 2008, with FCA estimates suggesting that 10 million new claims are expected to be brought.
The average PPI payout of £2,750 should result in compensation of £1,842 where calculated in line with the court decisions – a monumental rise on the £467 being paid by the banks under the guidance provided by the FCA. Further increases to the figure would also occur once the profit-share element is calculated, which could add a further £400-600 per claim.
This would result in a total exposure of at least £18.42bn – a 300 per cent rise on the £4.6bn estimated by the FCA.
St John’s Buildings barrister Elis Gomer said: “Consumers could be forgiven for asking whose side the FCA is on. These figures reveal that the UK public are being misled by the banks, with potential compensation on average four times the amount suggested by the body supposedly looking after consumers.
“The question must be asked: what is the FCA’s objective in providing its Plevin guidance, and is it consistent with its strategic objective to ‘secure an appropriate degree of protection for consumers’? On first glance it appears not, and following similar failings by other financial organisations, a wider investigation into advisory services may be warranted.
“For any consumer that has received a letter from their bank offering them a PPI settlement, it is important that you seek immediate legal advice, as they will be able to help you better understand what you may be entitled to. As we have seen, the figures show that the true value of a claim is significantly higher.”
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