PPI News

The BBC´s Moneybox program has exposed how consumers seeking credit card PPI redress receive different amounts depending on the issuer of their credit card.

Listeners to Radio 4´s Moneybox program heard that credit card PPI redress “is becoming a bit of a lottery” due to two different methodologies used to calculate PPI refunds when credit card consumers pay off their monthly credit card balances.

Both methodologies are supposed to return the credit card holders to the financial position that they would have been had PPI not been missold to them. However, the way in which certain credit card companies calculate credit card PPI redress mean that their customers receive a lower amount of PPI compensation than if their credit card had been issued by a High Street bank.

Explaining the difference between the two methodologies, personal finance expert Jonquil Lowe said that when refunds of PPI are calculated, a consumer´s credit card history is reconstructed. Premiums for missold PPI are removed, as are any fees and charges that have been triggered by the premiums. Any interest charged on the premiums, fees and charges is refunded and 8% is added to the total as statutory interest.

When the premiums, fees and charges are removed, the outstanding balances due to be paid by the credit card holders are lower. Consequently, when consumers have paid off their credit card balances in full, they have effectively overpaid the credit card company. In this scenario, High Street banks treat the overpayment as a temporary credit to be used against future spending and, when they calculate credit card PPI redress, they include the overpayments in their payments of PPI compensation.

However, when selected credit card companies calculate their customers´ PPI refunds, the overpayment on the account is treated as a permanent loan therefore not included in credit card PPI redress payments – this reducing the value of the refund and creating the scenario in which two credit card customers have paid the same amount in premiums and charges after being missold PPI, but the bank credit card customer receives significantly more credit card PPI redress.

The two companies specifically identified as using the latter methodology to calculate credit card PPI redress were MBNA and Capitol One. However, there could be several other credit card companies also using this method for calculating credit card PPI redress. Therefore, if you have received a refund of PPI compensation from a credit card company, and would like to ensure that it has been calculated correctly, please call our claims helpline and speak with one of our claims specialists.

The Financial Conduct Authority has identified a 14% fall in PPI insurance complaints during the second half of 2014 according to the latest available data.

Firms that receive more than 500 complaints within a six month period are required by the Financial Conduct Authority (FCA) to publish statistics on their website relating to the number and nature of the complaints. The FCA then collates these statistics to monitor how many complaints are being received by financial institutions and to what financial product(s) they relate.

Since 2011/2, the complaints data collated by the FCA has been dominated by PPI insurance complaints. However, in the latest available data relating to the second half of 2014, PPI insurance complaints have seen a significant decline of 14% – the first time since late 2011 that PPI insurance complaints have accounted for less than 50% of the total number of complaints

Nonetheless, more than one million PPI insurance complaints were received by the leading banking groups in total – with units of the Lloyds Banking Group again taking first and second place on the list of the most complained about banks (figures relate to all complaints about insurance products):

1. Lloyds Bank– 183,652
2. Bank of Scotland– 179,250
3. Barclays Bank – 157,822
4. MBNA– 95,217
5. HSBC – 76,968

Speaking about the fall in the number of PPI insurance complaints, Christopher Woolard – the FCA’s Director of Strategy and Competition – said: “Today’s statistics offer a mixed picture. When you take PPI out of the equation, complaints are still on the up.  So, while the overall decreases we have seen should be welcomed there is still more for financial services firms to do. The FCA’s challenge to those firms is to put the necessary measures in place to ensure we see a consistent fall across all sectors.”

Elsewhere within the FCA´s data, the total amount paid by monitored banking groups in redress for missold PPI policies and other insurance products increased slightly from £2.34 billion in the first half of the year to £2.44 billion between July and December.

BBC researchers have found that the incorrect calculation of PPI compensation is a common practice among banks and credit providers.

The researchers for the BBC radio program “You and Yours” found that banks and credit providers are frequently neglecting to include overdraft charges that were triggered by a PPI premium taking customers beyond their borrowing limits. The researchers allege that the incorrect calculation of PPI compensation is deliberate and is saving banks millions of pounds at their customer´s expense.

The researchers supported their allegations with evidence of miscalculated PPI refunds paid to customers of Lloyds, Barclays, MBNA and Capital One. All four of the credit providers investigated were guilty of the incorrect calculation of PPI compensation. The radio program also included an example of a miscalculation in which an MBNA customer had received a PPI refund of £5,800, but when his charges and compound interest were also included, should have received a refund in excess of £13,000.

Several other examples were included in the broadcast where an incorrect calculation of PPI compensation had been the basis of a PPI refund. Leading financial claims expert, Cliff D´Arcy, estimated that the total amount saved by banks and other credit providers approached £1 billion. He said that his high estimate was justified on the grounds that the fees charged for exceeding a borrowing limit are excessive, and that the practice of miscalculating PPI compensation appears to be so widespread.

Caroline Wayman – the Principle Financial Services Ombudsman – commented on the findings of the BBC´s researchers and said that, under the rules for calculating PPI compensation, “If a fee is the result of the mis-sold PPI, it should be given back, and if it’s not included in the amount [of the compensation], that would be a mistake.” She added “Any widespread failure to carry out proper calculations would most definitely be disappointing”.

The credit providers accused of the incorrect calculation of PPI compensation declined to be represented on the BBC´s broadcast; however the Lloyds Banking Group submitted a statement which was read out on the program. It said “When a customer lets us know that they may have incurred other costs because of their PPI policy, we will investigate and make an appropriate refund.”

A PPI county court ruling by a judge in Newcastle-upon-Tyne has resulted in a woman having her £8,000 credit card debt written off.

The credit card company MBNA sued Lynne Thorius from South Shields in South Tyneside after she was unable to maintain the payments on her credit card. Lynne had been issued with an MBNA credit card in 2002, and originally she had a credit limit of £1,500 limit.

Lynne used her MBNA card to buy presents for family and friends and to pay her bills; and, as she spent more on her card, her credit limit was increased in stages until it reached £7,000. After she had her hours reduced at work, Lynne started to struggle to maintain her credit card repayments.

However, after reviewing her finances, Lynne discovered that despite having ticked “no” on the original credit card agreement, MBNA had charged her between £20.00 and £30.00 per month over the previous seven years for payment protection insurance (PPI).

Lynne made a claim for PPI compensation – alleging that PPI had been applied to her account without her knowledge. MBNA rejected her claim and continued to pursue the outstanding credit card balance – even threatening Lynne with the repossession of her house.

Lynne´s case eventually went to Newcastle-upon-Tyne County Court, where MBNA tried to seek a judgement against her. At the PPI county court, Lynne was defended by a PPI claims management company who had taken up the cause of her rejected PPI compensation claim.

The claims management company told the judge in the PPI county court case that Lynne should not have been paying PPI premiums because she had not consented to the insurance policy, and – as MNBA had neglected to tell Lynne that the company earned a commission from the sale of PPI – that the credit card company was in breach of the Consumer Credit Act.

The judge at the PPI county court case agreed with the claims management company´s argument and, as MBNA was unable to produce a signed credit agreement indicating that Lynne had consented to PPI insurance, he found in Lynne´s favour – wiping out the balance of her credit card due to MBNA´s unfair practices.

An MBNA spokesman commented “The PPI county court ruling does not set any legal precedent. Each case is decided on its own merits and on the factual circumstance of each case”.