British banks could be forced to hand millions back to customers in a second wave of PPI refunds after new court rulings found the policies "unfair".
A series of court cases this year have ruled that banks were "unfair" to customers for not disclosing the commission they earned on the sale of the policies.
Had customers known about how much commission being charged, they may have questioned the value of the policy, the courts ruled.
In extreme cases, banks were found to have charged commission worth 95% of the cost passed on to the customer.
Experts told the Sunday Times that customers could be due a refund if they had been refused a payout under the old rules, only got a partial refund or had never made a mis-sold PPI claim.
The first wave of claims in the mis-sold PPI scandal cost banks more than £38 billion in compensation – or five times the cost of hosting the London Olympics.
Payment Protection Insurance (PPI) was an insurance policy which became popular in the 1990s, as banks often sold it to customers taking out credit such as a loan, credit card or mortgage.
The policy was designed to protect the borrower if they had an accident or lost their job, leaving them unable to make repayments.
However, pressure on sales staff to sell as many profitable policies as possible meant that millions of customers were sold policies which they did not need; for example, retired and self-employed people sold policies did not stand to benefit from them.
In many cases, sales staff simply did not tell customers about the policy, only including the details in the small print and rolling the cost of the insurance into loan repayments.
The Financial Conduct Authority outright banned PPI sales in 2009 because of the huge number of policies being mis-sold to customers.
This opened the floodgates for millions of mis-sold PPI claims, which forced banks to refund customers who had been short-changed Lloyds bank, the worst offender, had to cough up some £20 billion over the claims.
The deadline for new mis-sold PPI claims was in August 2019. But, having just caught their breath, it seems banks could be in for another round of claims.
The string of court cases ruling in favour of customers against the big banks hint that an opening for more customers to make these claims could be on the horizon.
The recent court cases are based on whether or not it was fair for the banks to sell policies without informing the customer of the enormous commission charged.
The first case dates all the way back to 2014 when the Supreme Court ruled that the relationship between a college lecturer and Paragon Personal Finance was “unfair” because the lender never told her about a 70% commission charged on her PPI policy.
Just this year, at least four other cases have been won by customers on the basis of “unfair” commission, with payouts totalling almost £19, 000.
In the latest ruling, held in January, District Judge Jonathan Stone told Bodmin County Court:
The level of commission is so large that it was unfair of the bank to keep [the customer] in ignorance of it.”
He pointed out that the bank, RBS, had hired a top QC, likely at the cost of £1000s per hour, suggesting it was desperate to hold back against a tide of possible new claims:
I suspect that it is this [limitation] point that causes the bank sufficient concern to justify the instruction of queen’s counsel to attend a small claim in Bodmin where the sum in issue is approximately £1,500Jude Stone told the court
Some 64 million PPI policies were sold from the 1990s to 2009.
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