In May 2011 HSBC announced in would be setting aside £269 million to deal with the issues surrounding the mis-selling of payment protection insurance policies. The figure takes into account the cost of investigating complaints and paying compensation as well as the possible need to recruit new staff to cope with the volume of new payment protection claims. The number of complaints could be significant, the bank is estimated to have sold around 1.25 payment protection policies including those sold by its subsidiary HFC.
This is not the first time HSBC has made headlines for its involvement in the PPI affair. In 2008, HFC, also trading as Benefical Finance and Holdhold Bank, was fined £1,085,000. The fine was levied after investigations by The Office of Fair Trading and The Financial Services Authority found significant failings across the PPI industry. It was found that the bank had put its customers at an unacceptable risk of being sold an unsuitable PPI policy during in branch sales that occurred between January 2005 and May 2007.
Payment Protection Insurance is not an intrinsically bad product, in fact, it can offer a peace of mind to customers taking out a significant loan or debt. The cover protects against the threat of loss of employment due to redundancy, illness or accident by stepping in and taking over repayments if the need arises. Unfortunately, because of the way the policy has been sold in the past, it has recommended to customers who are unsuitable and who could not actually use the cover if they needed too. This means many have paid into a policy, and in many cases continue to do so, without realising it can be of no benefit to them whatsoever. The main issue with PPI is that it has a high number of exemptions. For example, most policies do not cover customers over the age of 65, but people in this category have often been sold the cover. In one case uncovered by The Citizens Advice Bureau it was found that a woman who was admitted to hospital had been refused help from her PPI provider despite paying into it for several years. The reason her claim was rejected was because she was 93 years old! Clearly, this woman should never have been sold this cover. This, it seems, is not an isolated instant, just 15% of people who try and use their loan payment protection policy are successful in making a claim – for credit card PPI this figure falls to just 11%
The other issue with PPI is that it is, often, very expensive. There are cheaper alternatives on the market, but in many cases lenders do not explain to their customers that they can purchase cover elsewhere or that it is even available. The cost of a loan PPI policy can be extremely high and ranges from 13%-50% of the core loan value. On a £10,000 loan this may add an additional £1,300-£5,600. The PPI will also attract interest at the same rate of interest as the loan leading to a significant increase in the overall debt.
With the pledge of £269 million HSBC appears eager to draw a line under the Payment Protection issue. The decision has come at a cost, though, and has been highlighted as a contributing factor in the banks falling profits. In May 2011 the lender posted first quarter profits of £3 billion – a fall of 14% from the same period last year. The story is a familiar one as many high street banks have felt the financial pain of the Payment protection scandal. One should not be too sympathetic; however, as the PPI industry still generates in excess of £5 billion per year for lenders and has been seen as a significant cash cow for lenders for many years. Many commentators have hinted that at the heart of the PPI problem was greed as banks, building societies and brokers focused on the massive profitability of the cover and prioritised it over the needs of their customers. Indeed, much of The Financial Service Authority and Office of Fair Trading’s criticism pointed to a lack of internal processes and training rather than a blatant plot to mis-sell.
If you have been mis sold PPI, BY HSBC or another lender, you can start your claim today by calling our team on 0207 471 2000.