What can we Learn from the PPI scandal?

When things go wrong politicians immediately use one of the most overused sound bites: lessons must be learned. At £13bn and rising, The PPI (Payment Protection Insurance) mis-selling scandal has become one of the most expensive lessons that UK banks have ever had to learn. Whilst losing money is usually the only way banks learn to curb their behaviour, and consumer trust in banks at an all-time low, many hope that this is not the only lesson to come out of the PPI controversy. Nor should banks be the only ones needing to make changes in light of the scandal.
What should the banks learn?
First thing banks need to learn is that they have no one else to blame but themselves. Whilst they’ve apologised for their actions, it’s unlikely that they’ll learn not to do it again. However, if nothing else banks could take lessons from the way they’ve dealt with the PPI scandal.

The banks’ main technique was initially to ignore accusations about mis-selling PPI. As pressure mounted, instead of stopping mis-selling, they chose to lobby the government and regulators against cracking down on the product and continued mis-selling for several more years.

These tactics were used in the assumption that they’d never have to account for their actions.
However, banks would be wise to learn not to underestimate consumer action and that delay tactics simply upped the cost of the compensation they had to pay back.


What should financial regulators learn?
The recent launch of the new Financial Conduct Authority (FCA), which replaces the FSA in 2013, has been seen as a huge opportunity for regulators in the industry “to start afresh”. This can only be a good thing as experts criticised the FSA and the Competition Commission of being too slow to act, stepping in only after several years and numerous failed attempts at self-regulation by the banks.

The real action came from consumer groups which?  And the Citizens’ Advice Bureau (CAB) who’d first identified PPI mis-selling in 1998. Although the FSA began investigations after CAB’s ‘super-complaint’ in 2005, the FSA seemed to have little power or inclination to curb the banks’ behaviour. It wasn’t until the High Court ruling of 2011 that saw them finally exercise any authority over banks.

It seems the main lesson learned by the financial regulator is that they need to carve out powers tough enough to deal with the banking sector. The new FCA is set to have tougher powers to allow it to ban products and promotions if it believes that they create risks to consumers.

What should customers learn?
This is the most important area of learning because regardless of how we think banks should act, evidence suggests that history will repeat itself when the next lucrative product comes on the market. However, it’s vital that the PPI scandal doesn’t make customers wary of financial products that could benefit them. Instead they should be less afraid about interrogating the value and suitability of the product – making sure the policy actually meets their needs, that payouts are sufficient, and to take the time to read the small print. Customers should also be more confident to question sales advisors, and be able to say no if they are feeling pressured. Interestingly consumers have little problem with using some of these techniques to find cheaper car insurance for example. Taking some of this attitude and using it when dealing with the banks may help to reduce the likelihood of being hoodwinked by the banks in the future. 

Author Bio
Gladstone Brookes is a PPI Specialist regulated by the Ministry of Justice and deals with PPI claims on bank loans, mortgages, credit cards and store cards.  In 2011 Gladstone Brookes helped to claim back over £108m in mis-sold PPI claims.