LONDON: Britain's banks are allocating billions of pounds to compensate clients who were mis-sold credit insurance, in a fresh blow to a sector seeking to gain public trust after the financial crisis.
Industry body the British Bankers' Association (BBA) on Monday said it would not appeal last month's high court ruling that called for tighter regulation of payment protection insurance (PPI), which has been mis-sold for years.
‘We don't always get things right for our customers; when we get them wrong, we apologise and put them right,’ Barclays chief executive Bob Diamond said on Monday as the bank announced plans to put aside £1.0 billion in compensation.
‘That's our commitment to our customers, and it applies to the way in which we will deal with PPI complaints,’ Diamond added.
Consumer groups hailed the development.
More than three million people are in line for compensation, while the total cost to banks is estimated at up to £9.0 billion (10.3 billion euros, $14.9 billion) -- which would be Britain's most expensive scandal of its kind.
Also on Monday, Europe's biggest bank HSBC said it would be making $440 million (£270 million, 307 million euros) available for PPI clients.
Lloyds Banking Group last week said it was setting aside a much larger sum of £3.2 billion.
‘This is a wonderful day for consumers,’ said Martin Lewis, a leading campaigner on behalf of PPI clients.
‘For once the banks have done the right thing and backed down. As much as £9 billion that was wrongly taken could now be paid back,’ added the creator of website MoneySavingExpert.com.
PPI, which covers repayments on credit products for consumers who for example lose their jobs through illness, has turned out to be highly controversial.
It has been found that people who could never benefit from the insurance, such as those on state benefits or in some case the self-employed, were nevertheless sold policies.
Britain's Competition Commission has since banned simultaneous sales of PPI and credit products, such as personal loans or mortgages.
Peter Vicary-Smith, chief executive of consumer advice group Which?, also expressed delight at Monday's developments.
‘Hopefully this will be a watershed moment in how banks treat their customers. It was a colossal error of judgment by the BBA to have brought this case in the first place, which has even further diminished the banking industry's reputation in the eyes of consumers.
‘PPI was mis-sold and complaints about it mishandled on an industrial scale for well over a decade. Now the industry must make amends by quickly reimbursing the millions of people it has ripped off,’ he added.
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