Alliance and Leicester

In 2008 Alliance and Leicester received the decidedly unwelcome record of being the highest fined financial institution to be caught up in the Payment Protection insurance scandal. The fine, handed down by The Financial Services Authority (FSA), was for £7 million and was the result of what the FSA termed the most 'serious failings' they had come across.

It was revealed that The Alliance and Leicester had trained sales staff to put undue pressure on customers who questioned the inclusion of an optional payment protection policy on a quote for a loan. The FSA added that there had been a failure to make the cost of the insurance clear to customers during telephone sales of the product.

Payment Protection Insurance is meant to cover a borrower in the event they cannot keep up with debt repayments as a result of unemployment arising from redundancy, sickness or accident. The cover is expensive, though, and The Citizens Advice Bureau has been just one of the organisations to highlight the poor value for money it represents. It also has a high number of exemptions attached to most policies meaning there are frequently a long list of circumstances for which the customer cannot make a claim. For example, most policies do not cover back pain meaning anyone off sick with a back injury is unlikely to be able to use their payment protection policy. There are, of course, many people for whom PPI can be a worthwhile product. The FSA's issue, though, is that customers should be fully advised of the costs and exemptions to enable them to make an informed decision. This is clearly an area where Alliance and Leicester let some customers down.

The driving force behind PPI sales is often the huge profits lenders can make. Loan payment protection can cost a borrower anywhere from 13%-56% of their original loan value. This means on a £25,000 loan a customer may pay an additional cost of £3,250 - £14,000 for the cover – plus interest. The rate of payouts for PPI claims is also particularly low. The Competition Commission put the figure at 15% meaning only fifteen in every hundred people who try to use the policy are successful. When compared to the claim payout of 76% on a car insurance policy it is easy to see why PPI became such a cash cow for lenders – for every £10 spent on PPI they could potentially make £8.50 profit.

The FSA found that Alliance and Leicester had sold approximately 210,000 payment protection policies between January 2005 and December 2007 at an average cost of £1,265. It was particularly critical of the way in which the lender had trained staff to recommend cover that customers may neither want or need and stated that customers should be able to rely on impartial advice tailored to their personal circumstances. Alliance and Leicester's Group Chief Executive at the time David Bennett was quick to apologise for failings adding they had already 'tightened up processes' to ensure customers received 'the right information and advice.'

Alliance and Leicester were by no means the only lender found wanting in the FSA's investigation, other lenders fined included: Capital One and Liverpool Victoria. The FSA's investigation has had a positive affect on the sale of Payment Protection insurance and has led to an improvement in internal processes and training for many lenders – perhaps unsurprisingly it has also led to a huge surge in the number of PPI claims.

Prior to the investigation by the FSA and the earlier investigations by The Citizens Advice Bureau, The Office of Fair Trading and The Financial Ombudsman Service, many people where either unaware they had been mis sold payment protection or were unaware they could make a claim. Following such widespread criticism, though, it was virtually impossible for lenders to dismiss customer's complaints or avoid tackling the mis-selling issue. This has not stopped some lenders from trying, though! After several years that had seen year-on-year increases The British Banking Association (BBA) requested a High Court review in 2010 of new FSA guidelines. The guidelines make it very clear that lenders have an obligation to make customers fully aware of the terms of the insurance and also of the fact that the cover is optional. The BBA countered that the guidelines were unfair as they would force lenders to examine old policies against a new set of guidelines. Thankfully, the courts agreed with the FSA and in April 2011 it rejected the BBA's claims. All this means that there is now no better time to reclaim mis-sold PPI. For more information call our team today on 0207 471 2000.