PPI complaints soar; banks pay out £557 million

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Banks have paid out millions of pounds to customers who have been mis-sold payment protection insurance, and after a summer lull the number of complaints has risen steeply in the last couple of months.

In what could be one of Britain's biggest mis-selling scandals, the big high street banks have paid out £557m in the first six months of the year, after 532,000 people complained they had been mis-sold PPI, according to the Financial Services Authority.

The Financial Ombudsman Service, which deals with cases that have been thrown out by banks, said it is now receiving 3,000 complaints a week, compared with 1,000 previously.

Natalie Ceeney, chief financial ombudsman, described the record numbers as "pretty unsettling for us". Nine out of 10 cases have been upheld in favour of the consumer, with compensation payments averaging £2,750, although they can vary hugely - from £200 to more than £10,000. One customer received £100,000 but they had a number of PPI policies.

The controversial insurance, which was intended to protect customers in case of illness or redundancy, was sold alongside financial products such as loans or credit cards. Customers were often not aware that the policy was optional, and it rarely paid out.

FSA rules state that complaints should be dealt with within eight weeks, but crucially this does not include making a compensation payment. Some customers have been waiting for months. For example Mark Southee, a Lloyds TSB customer, who made a claim through a claims management company, was told by the bank in early August that he would be 'shortly' receiving £13,000 in compensation - but he is still waiting for the money to arrive in his bank account.

Lloyds was the biggest seller of PPI, accounting for some 40% of all policies sold. A Lloyds spokeswoman said the bank was processing all claims within 28 days, but admitted there had been a one-off processing issue recently. She insisted the bank was "working extremely hard to clear that backlog".

The bulk of the complaints referred to the FOS were brought by claims management companies. The FOS and consumer organisations have warned that these firms charge hefty fees and don't improve your chances. You're just as likely to be successful if you make a claim yourself, and the FOS is a free service.

Were you mis-sold PPI?
If your answer is 'no' to one or more of these questions drawn up by consumer group Which?, you may have been mis-sold PPI and should make a claim directly to your bank. Which? has this guide to making a claim. If you don't get anywhere with your bank, you can complain to the FOS.
  • Was it made clear to you that the insurance was optional?
  • Did the adviser tell you about any significant exclusions under the policy – for example, the exclusion that says you won't be covered for any pre-existing medical condition?
  • If you took out a loan or finance agreement, did the adviser make it clear that you would have to pay for the insurance up front in one single payment?
  • If you had to pay for the PPI as a single payment, did the adviser make it clear that the insurance cost would be added to the loan and you would be paying interest on it?
  • Single premium PPI insurance normally only lasts for five years. If your loan or finance agreement was for longer than this, did the adviser make it clear that the insurance would run out before you had finished paying for your loan or finance agreement?
  • Finally, if you bought PPI after 14 January 2005 did the adviser try to persuade you to take it out by saying something like 'we strongly recommend that you consider taking out PPI'?