UK banks in a spin as consumers set for another windfall

WITH the legal case brought by the United Kingdom’s Office of Fair Trading (OFT) against banking institutions over unlawful bank charges yet to be formally decided, another scandal of gargantuan proportions is set to take the banking world by storm and make the bank charges debacle look like the proverbial storm in a teacup.

It is estimated that banks make £4bn a year out of charging their clients for unauthorised overdrafts, unpaid direct debits and bounced cheques. And retail banking is without question the most profitable business sector in the United Kingdom with banks making an average of £75.00 per customer annually as compared with the retail sector where the return is £50.90 or the £39.40 made by mobile phone companies.

But no one knows with any degree of certainty how much money banks have made over the last few years in the two areas that are the subject of the latest scandal.  The figures are so exorbitant that banks are glumly preparing themselves for claims that are guaranteed to set a precedent for the highest fines and consumer compensation claims ever seen in this economy.

The two areas in question are the mis-selling of payment protection insurance (more commonly known as PPI) and mortgage/loan mis-selling claims. Banks and other financial institutions have already been taken to task over the mis-selling of these products to thousands of their customers.  But it looks like the chickens have come home to roost in their droves.

Payment Protection Insurance

Anyone who has ever taken out a personal loan, secured loan or other such finance will be familiar with situations where the lender tries to persuade you to take out insurance to cover your repayments in the event that you are unable to work due to the loss of your employment, or if you were to fall sick or have an accident. On the face of it, these offers seem reasonable enough when you consider that unexpected misfortunes do happen and no one can accurately predict what the future holds. Taking out insurance for these events may actually be quite prudent and advisable.

But there are a number of key problems that have been identified in the sale of this type of insurance. Cases abound of major impropriety in the sale of PPI including:

• People being told by the lender that taking out the insurance is a condition of the loan.  Therefore if they do not take the insurance they will not get the cash they need.  It is difficult to quibble with a lender over PPI when you have the guarantee of an approved loan if you just sign on the dotted line.

•  The insurance being more expensive than the loan itself.  Many lenders will usually make more money from the sale of the insurance policy than from the interest they make on the loan.  In a typical scenario, if one was to borrow £10,000 over 60 months (5 years) at 6.5%, the interest payment would be a not immodest £1,700.00 but the insurance cost is a whopping £2,100.00.  I wonder how many people would take out these policies if they were aware of their real cost?

• Many of the products recommended to customers by the lenders not being suitable for the individuals buying them.  If for example you are self employed, most of the policies providing unemployment cover will not cover your repayments were you to lose your income, as they are geared towards those in full time employment.

• The customer not even being aware that they have the insurance. Many people do not understand the jargon that is used in loan documents and banks take advantage of this, using terms such as ‘fully protected loan’ which is just a fancy way of saying ‘we are taking money out of your pocket and you don’t even realize it.

• The insurance being significantly cheaper elsewhere.  There are many policies on the market that provide the same or better cover for a fraction of the cost being levied by many of the lenders.

If any of these circumstances sound familiar, you may have a potential claim which could result in you being refunded thousands of pounds.  If you have taken out any of the products below you may be in line for an unexpected windfall:

• Personal loans
• Secured loans
• Credit cards
• Store cards
• Mail order catalogues

A number of lenders have been fined by the FSA recently for providing their clients with poor advice, including HFC Bank which is part of HSBC, GE Capital Bank and Capital One Bank.  And that list will grow much larger as people become increasingly aware of what is going on.

 
Mortgage/Loan mis-selling

There have been a number of programmes recently, such as Panorama and Watchdog, highlighting some of the more nefarious activities taking place in the housing market. Property prices in the UK have risen considerably over the last decade and this strong growth has led to a huge increase in the number of individuals and companies offering mortgage facilities, many with less than stellar credentials.

There aren’t many people who don’t harbour the desire to purchase a home. For the average person buying a house is often a highly emotive and irrational affair, and in a bid to get their hands on their own bit of bricks and mortar, many people do not take the time to fully appraise and understand the punitive nature of the mortgages they take out.  Many lenders and mortgage brokers are aware of this desperation and have taken full advantage resulting in people being sold mortgages that are totally unsuited to their needs.  The end result has been unprecedented repossessions with borrowers finding themselves saddled with repayments they cannot ever hope to afford, and this after having paid out thousands of pounds in broker and administration fees.   

The main areas of concern are:

• Where brokers have received commissions from the lenders they act for and not disclosed these to their clients.  Undisclosed commissions are considered at law to be a form of bribe.
  
• Where hiked, sub prime mortgage rates were recommended to prime mortgagors.  This is where the borrower is misled about their credit worthiness and subsequently paying thousands of pounds more over the term of the mortgage than he or she would have had to if the correct product had been recommended to them by their broker
  
• Where large lump sum accident, sickness, unemployment (ASU) premiums were paid and added to your loan.  Wouldn’t it be better for you if you took a policy that cost £12 a month, than pay a lump sum of £5,000 with interest being charged on this amount at 15% per annum?

In all these circumstances, potential claims can be brought against the lender to recover amounts already paid or due to be paid. 

If you fall into any of the above categories relating to the mis-selling of PPI or mortgages or other loans, it is worth pursuing a claim before the banks and other lending institutions use their considerable political and financial clout to yet again close off the avenues currently available for consumer redress.

Jaimie Oliver Garande is a solicitor and chartered secretary with Gaskins Solicitors in Milton Keynes and is also a partner with Oliver Bern and Co.  He can be contacted on 01908 843 695, at jgarande@gaskinssolicitors.co.uk or at www.gaskinssolicitors.co.uk 

While every effort has been made to ensure this article’s accuracy, it isn’t intended to be seen as legal advice and no liability can be accepted for any claimants who rely upon the information given.