Topic: Central Bank finally takes action on Payment Protection Scandal.
Comment: The recent scandal with Payment Protection Insurance(PPI) has been an ‘accident’ waiting to happen for Irish banks. It is estimated that over 340,000 of these policies have been sold here in connection with mortgages, credit cards and personal loans. The Central Bank recently issued an instruction to certain banks here to conduct an intensive review of all policies sold, as they believe there was considerable mis-selling occurring. The results of these investigations will be that substantial refunds could be issued to a large number of customers.
The Financial Services Authority in the UK, carried out a similar exercise last year which resulted in their banks having to refund billions to their customers. I have been warning for many years, that customers should never touch these policies due to the fact that they are both expensive and that the successful claims experience has been appalling.
PPI was supposed to cover repayments to a bank in the event of sickness, death or redundancy. For example in the case of redundancy, the policies were sold to self employed, contract and part-time employees who would never receive redundancy.
In the case of sickness and death, customers who would had pre-existing conditions were also sold these policies and could never have a valid claim.
Up to a number of years ago some institutions had a section on their credit application forms, whereby you had to opt out of this type of cover rather than opt in. Therefore a number of people were paying the premium on a PPI without realising it.
There is no doubt that this is one of the most exceptional mis-selling by Irish banks, which will do little to enhance their reputation amongst their customers.
It remains to be seen what the outcome of this investigation will be and the extent of which refunds will be issued.