Friday, 13 May 2016

Yet Another Face Palm Moment..This time - PPI


Of course it bloody is.  The 'government' is entirely to blame for the (non) PPI 'crisis'.  As all of you may know, had you been keeping up at the back, that I have told you before that the bloody government, both itself and its agents, the equally failed FSA and FCA, TOLD the financial services industry to sell PPI. Yep, they TOLD us to sell it.

(Point of information.  We 'sold' about five, yes FIVE, PPI plans. Successful policyholder claim on one - by an owner director of a small limited company that failed. Yes really.  His own firm. Work that out.  No policyholder complaints on the others.  And in dealing with the compulsion to sell PPI on any personal finance business - mortgages in our case - we changed our standard wording in one of our client info documents so that we could demonstrate that we had 'talked about it' to the regulator - if asked  - and then just carried on treating our clients as adults).

What's more we told the Financial Shambles Authority that the whole PPI thing would end in tears.

And then there's the reg-yew-lay-shuns.  These enable, nay encourage, an entirely mechanistic approach to dispute resolution that bears no relationship at all to the due process of law.  Essentially the 'rules' deliberately enable arbitrary decisions, based largely on 20/20 hindsight, by capricious bureaucrats. (BTW, if you print out the FCA rule book it will stand eight and half feet high  - A4 double sided). The effect of this approach is to create a companion opportunity for exploitation by the less than scrupulous to create fake businesses to 'help' people pursue these claims.  Furthermore, when you get a tsunami of such claims it is far cheaper for the target institution to just pay up than to investigate and fight every claim.  We have evidence that claims have been paid where no PPI had actually been sold.  Also, getting £20+ Bn out of Bank capital is helpful to the government as it just gets spent. Never mind that it is a conversion of capital to consumption.  Anyway the government can just print some more money to re-capitalise its crony banks.

And then you have to take into account the whole Newspeak concept of 'mis-selling', of which there can be no such thing in a free society with personal responsibility.  The Bank is its own agent.  If you buy a product or service from a Bank, Caveat Emptor applies.  If you have doubts that you understand a financial or insurance product you can take professional advice.  That adviser is your agent and takes professional responsibility and has PI cover in case he makes a mistake.

And to back this up I can relate a small vignette that befell Mrs L and me.  Some years ago, soon after we were told to sell PPI, Mrs L asked me to go to her bank with her where she was sorting out a personal loan. I went through the loan documents and spotted that a single premium PPI plan had been automatically added. (Single premium plans paid a very large initial commission, from memory about 25% of the premium).  The premium was in the thousands of Pounds.  'What's this?' I asked. 'Oh', said the bank lady. 'That's the insurance. The government says you have to have that'.  'Erm, no it does not' Quoth I. 'Take it off Mrs L doesn't need it'.   'And two other things, bank person, one, this stuff is going to be the next scandal, and if I catch you forcing any more of my clients to have it I will be down your throats ASAP' (or words to that effect).

The whole PPI farrago stinks. It is a litany of massive government and regulatory failure.  We've known this for years.

Update.  My memory is slightly defective on the scrapping of mortgage interest benefit for the unemployed.  I think it might have been that the term for which it was available was limited , and that the qualifying rules were tightened.  And also that the actual rate was capped  (Here). And I found this, which is very useful.  I do, however stand by my assertion that we were told to sell PPI - or mortgage payment protection of some kind.


H said...

As a private consumer, I was always very careful to avoid ticking the PPI box, because I was aware that I was unlikely to be unable to make a claim (for various reasons). It's not a little irritating to realise now that, as a cautious consumer, I have in effect been penalised, because it seems that PPI was a 'no lose gamble'. In addition, making the large financial institutions bear the costs of compensation has in effect mutualised the problem (quite explicitly so in the case of the nationalised banks).

Lola said...

H Correct. A proper bastard isn't it.

Mark Wadsworth said...


H, me neither. I assumed that PPI was a total scam and they would never pay out. I was right on the first count and wrong on the second.

Steven_L said...

I used to sell it in an HBOS call centre. In training they told us selling it was a priority because they got 70p of every £1. They used to push additional cardholder credit cards there too. I even overheard one agent suggesting to some old lady she could get one for her next door neighbour when she objected that she had no husband or children.

I got in trouble for not selling enough there (there was no written bonus scheme as such, just a vague promise of a bonus, so the £7.50 an hour was all I was counting on) and was told by the call centre manager that "We are a sales company". That was very much their attitude at HBOS, sell, sell, sell and damn the consequences.

Lola said...

SL. Brilliant info. Tell us all more. And you have confirmed my commission recollections.

This is evidence of the cultural shift in banking since - not exactly sure when. FWIW My first Natwest manager when I started in business invited me to his leaving party in about 1990. I asked him why he was jacking it in. Because I can no longer work as a 'bank manager'. I am now effectively an insurance salesman.

Steven_L said...

There's not much more to tell really. This was 2004. A recruitment agency in Cardiff was advertising £7.49/hour call centre work. This was a pretty good basic for a student job so I went for it. You did a week or two training (I can't remember whether it was one or two) and it was then we were told it was 70p in every £1 for HBOS when we sold PPI.

The job coincided with the Halifax / Bank of Scotland 'One' credit card, which was the first to offer 18 months 0% balance transfers. Sometimes we took applications. But most calls were when customers phoned in to 'activate' them. We were to sell additional cardholder cards (where the cardholder spends and the account holder is liable) PPI and that other insurance that covers you for losing your wallet and 'fraud'. The other one was bogus too, because most card fraud is against the bank, not the account holder.

I stayed for a few months and then that was that. When we took applications we had to ask people how much they earned and how much debt they were in. This was very eye opening. This was when I first realised that something was very wrong in the economy. I just wish I had known how to act on these hunches and had acted on them and made a packet shorting HBOS etc. I will know next time, because there will be a next time, because the 100% mortgages are starting again. The cycle continues....

The Stigler said...

I was involved in software for mortgage protection for a while and it was obviously a scam. And I can see why the government got involved - you had to declare PPI payments to the DHSS on your policy, which they deducted from your benefits. So, unless you covered your whole income, it wasn't worth it.

The funniest one with our policy was a few people who spotted a trick - it covered whatever your mortgage payment was for 2 years, so a few people who got made redundant called in and reduced their term to 2 years. Ridiculously expensive mortgage, but the insurance paid it off. Unsurprisingly, these people couldn't seem to find a job for 2 years while someone was paying £2K/month off their mortgage.