Banks fobbing off PPI mis-selling complaints with 'goodwill' payments

Banks fobbing off PPI mis-selling complaints with 'goodwill' payments

Customers who reclaim mis-sold loan insurance from banks and other lenders are being warned not to accept "gesture" payments worth a fraction of their potential payout.

Nine out of 10 payment protection insurance (PPI) mis-selling claims rejected by lenders are now being upheld by consumer watchdog the Financial Ombudsman Service, up from a historical level of 40%. It says this is because borrowers have been "fobbed off" with less than they are entitled to.

The problem has become so acute officials at the FOS and City regulator the Financial Services Authority (FSA) are working together to resolve it.

The FOS estimates that, by the end of next month, it will have received a record 25,000 complaints about the mis-selling of PPI. These controversial policies, often expensive and designed to pay out to cover personal loans or credit card payments if you fall ill, suffer an accident or lose your job, have been dragged into the spotlight after customers found they did not qualify for a claim or did not realise they had been mis-sold the policies.

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How to resolve the issue is becoming a major problem for the watchdog and regulator since the banking industry, largely responsible for the millions of sold policies, is repeatedly failing to appropriately process the complaints, a spokesman for the FOS says.

"Our concern is that lenders across the board simply aren't learning and are making the same mistakes," he says. "The real worry is that those individuals mis-sold policies who don't realise they can use the FOS will be easily fobbed off with the lower sum. "

Claims company Brunel Franklin says it has noticed an emerging pattern of "goodwill" payments to complainants by RBS, the bank part-owned by the government and bailed out by taxpayers' cash, designed to throw customers off the scent of a bigger payout. Each RBS payment is set at £750, often much less than the amount owed, says Sally Bowyer, managing director of BrunelFranklin.com.

"The customer often seems to be fobbed off with around £750 as a gesture of goodwill, when the average PPI claim we handle is around £2,200. If RBS is trying to minimise claims to around £750, it may be in a planned effort to reduce its projected compensation payouts by up to two-thirds."

A NatWest/RBS spokeswoman said: "We are satisfied that our complaints-handling procedures are fair, that every case is considered on its own individual merits, and that the decisions reached are reasonable, based on the evidence available. There is no obligation for our customers to accept our settlement offer. Any customer whose complaint is rejected by RBS or NatWest is always notified of their right to refer the case to the Financial Ombudsman Service." FSA rules on complaint handling suggest lenders should effectively learn from the type of complaints heading their way, understand their nature and origin, and sort them.

Issuing a routine goodwill gesture seems to go against this ethos.

Plenty of lenders have been penalised for poor handling of PPI sales. Last October, Alliance & Leicester was fined £7m by the FSA for serious failings in its sales procedures. Others including Liverpool Victoria Banking services, GE Capital Bank and HFC Bank have also been forced to pay compensation.

The Competition Commission last month announced the sale of PPI alongside loans and credit cards would be banned in 2010 - lenders will have to wait seven days before they can get in touch with a customer to subsequently offer them the insurance.

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