The end is near: PPI claims deadline approaches and will have big effects on the industry
September 13, 2019
2 min read
What's going on here?
On the 29th August, UK’s financial regulators brought down the shutters on Britain’s costliest ever consumer scandal.
What does this mean?
£36 billion has been paid out by UK banks to compensate people who were mis-sold insurance cover between 1990 and 2010. Banks and other financial institutions pushed these PPI policies with a promise that they would pay out if the borrowers were unable to work due to illness, injury or redundancy. With the campaign “now is the time to act” informing people of the incoming deadlines, claims management companies have engaged in a final push to grab a share of compensation.
It is not just claim firms that stand to lose now that the deadline has passed but the overall UK economy. This is because there is an argument that the payouts have stimulated the UK economy. The claims sector was one of the fastest growing areas of employment at one point and the compensation won was used by successful claimants for home improvements, buying new cars or other spending that boosted the economy.
What's the big picture effect?
Now that the deadline has passed, an unexpected surge in last-minute claims is hitting banks’ balance sheets.
Dominic Lindley of New City Agenda (a think-tank on issues relating to the Financial Services industry) said that the last-minute spike in PPI complaints would have “a significant impact on banks when they announce their next financial results.” CYBG (a holding company that owns Clydesdale Bank, Yorkshire Bank, Virgin Money UK and more) said that it received more than 8 months’ worth of requests in one month and some 120,000 in the final 3 days. It warned of a potential £450m bill for new claims and subsequently, its shares fell 21%, hitting record lows. RBS had also set aside £5.3bn to cover PPI compensation claims but the bank said it is likely to take up £900m in additional charges due to the surge.
In addition to this, many will risk losing their jobs now that the deadline had passed. Claims management companies have generated £3.7bn in turnover since 2011, which means they have a 10% cut of the £36bn that banks have sheered out in compensation. James Daley of Fairer Finance (a research and ratings agency that looks to help consumers make more informed decisions) noted that “…the end of PPI will mean the end of the road for a lot of claims management companies and I would expect a wider impact on the economy when payments are reduced.”
No one can fully predict what will happen to the economy within the next couple of years, but one thing is for sure, it may take far longer for the financial service industry to regain the public’s trust.
Report written by Maab Saifeldin
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