Here, we take a look at how the judicial review came about and what today's decision could mean for you... .
What exactly is PPI?
PPI is an insurance product which is designed to cover the cost of debt repayments in the event you are unable to make them due to falling ill, having an accident or losing your job. These policies are usually sold alongside loans or credit cards, but many have been mis-sold to consumers who would never be able to claim anyway. Thousands of consumers have also been pressurised into taking out PPI without fully understanding how the policies work.
Kevin Mountford, head of banking at moneysupermarket.com said; "We have seen many cases over recent years where some consumers have been sold completely unsuitable products that were unworkable for them because of pre-existing conditions for example, or because they were self-employed."
The Financial Services Authority's latest round of complaints data on individual financial businesses for the last six months of 2010 revealed a 63% increase in the number of PPI complaints, with almost half a million complaints registered during this period alone.
What prompted the judicial review?
The British Bankers' Association brought the action against the Financial Services Authority and Financial Ombudsman Service after new principles and guidance on PPI were introduced last December.
These regulations require companies to talk through the key features of PPI cover, rather than just handing over a document with details of the product, and providers also have to show that they demonstrated to the consumer that cover was optional.
The regulations apply to both policies bought after the start of December when the new rules were introduced and policies bought before this date. This could affect nearly three million people, and the banks challenged the regulations because they did not want to have to pay out compensation for past sales. They claim that implementing the new measures for PPI will cost them much more than the FSA's estimate of £4.4 billion.
So today's news is great for consumers?
In principle yes, but don't celebrate just yet, as the banks now have 21 days to ask the Court of Appeal if it can appeal. If the Court of Appeal allows this, and the appeal goes ahead, then it could mean several more months in court, delaying payments for people seeking compensation.
A spokesman for the British Bankers' Association said; "We are presently reviewing the judgment very carefully and considering whether to pursue an appeal. Until we have decided whether or not to pursue an appeal, any complaints that are directly affected by the judicial review and cannot be decided now will be placed on hold, and we will continue to work closely with the FSA to ensure that all complaints are appropriately handled."
Remember too that even if they don't appeal, banks are going to face a big bill for compensation claims, and are likely to want to recoup these costs elsewhere.
Mr Mountford said; "Up until today's ruling many banks have refused to deal with PPI claims until a decision was made, clearly hoping that they would win their case and the PPI cases would not need to be reviewed. That decision has now been reached, and no doubt this is going to be a costly exercise for the banks. However, it is likely that in the long term it will still be consumers who suffer the most, as any losses by the banks will be likely to result in higher costs or fees."
What if I think I've been mis-sold PPI?
Following today's court ruling, the banks should now contact PPI customers it believes may be eligible for compensation - up until now it's been up to the customer to lodge a complaint and ask for compensation.
However, if you believe you have been mis-sold a PPI policy you don't have to wait for your bank or loan provider to get in touch. You can still make a complaint yourself. Initially complain to the bank, explaining why you don't think it was appropriate for your needs. If, after eight weeks, you still haven't received a response, or you aren't happy with the answer given, you should take your complaint to the independent Financial Ombudsman Service.
Should I avoid this type of cover altogether?
No. While there is no escaping the fact PPI has received bad press recently, provided you choose a policy that is appropriate for your needs, this type of plan can provide valuable peace of mind.
Mr Mountford said; "The fact remains that when sold properly, PPI is an important product that does what it is supposed to do, it protects consumers. There have been genuine instances where consumers have been able to rely on the PPI cover to protect their credit card and loan payments."
Rate This Article
Click on a star to rate this article.
