Knowing The Amount Of Compensation That Banks Paid For The Mis-sold Payment Protection Insurance (PPI)

Payment Protection Insurance (PPI) has been mis-sold for a lot of reasons. This may be from consumers unknowingly charged by staff of some providers during the course of sale or not informing them that the policy was optional.

The resulting fallout has not only continued to damage the banks' credibility in the eyes of customers, especially in the light of controversies over bankers' bonuses amid the recent economic slump.

That's because the PPI scandal has also cost the banks plenty of cold, hard cash, with it being revealed at a hearing in January that the banks could be left some 4.5 million out of pocket simply as a result of implementing recent proposals put forward by the Financial Services Authority (FSA).

Those FSA guidelines, which came into force last December, called for banks to contact those customers who had potentially been mis-sold PPI and, if they had, to pay out appropriate compensation. That resulted in the launch by the industry - represented by the British Bankers Association (BBA) - of an ultimately unsuccessful High Court judicial review that aimed to alter the rules, which applied even in cases where no complaint had been made.

BBA representative, Lord Pannick QC informed the ruling judge Mr Justice Ouseley that it will cost the banks 3.2bn to handle all PPI complaints.

Such amount were based on the 20% take up of contacted customers holding PPI policies since 2005.It is believed that PPI providers will pay an additional 1.3bn for new complaints filed within the coming five years.

Moreover, the BBA representative also imposed that there were an error in the implementation of the guidelines as it will constitute a big burden on the firms which is against the set conduct of business rules. Nevertheless, the High Court gave a verdict in favour of the consumers thus ordering the banks to pay the policy holders compensation totalling to a billion of pounds.

Barclays, for example, announced in May after the April High Court decision that it would set aside 1bn to cover both customer redress and administration costs. The new chief executive at Lloyds, meanwhile, Antonio Horta-Osorio, confirmed that the bank would be ceasing its own battle with the FSA and increasing the amount that it put aside for PPI compensation to 3.2bn.

Further, Royal Bank of Scotland (RBS) also obliged with the decision and confirmed that they are setting aside a further provision of 850m for affected clients. This is on top of the 100m already paid to customers in compensation. In the meantime, Co-op Banks equally apportioned 90 million to pay out mis-sold PPI policy holders.

Obviously the PPI scandal is a big blow to the financial industry in the UK. According to analyst, it will cost the banks more than the FSA initial estimate of 4.2bn as it could probably reach 8bn to more than 10bn to correct the biggest blunder they have committed to their clients.