Which? reveals the true cost of PPI to consumersConsumers spent around £50bn on PPI over past 16 years

09 January 2013

Which? chief executive Peter Vicary-Smith today gave evidence to the Parliamentary Commission on Banking Standards on mis-selling, condemning Payment Protection Insurance (PPI) as a 'poor product that was sold badly'.

Peter Vicary-Smith said: 'If the banks are serious about wanting to get this problem behind them, as they should be, they have got to engage in the process of sorting out the backlog of compensation claims.' 

This comes as new Which? analysis reveals that consumers spent around £50bn on PPI over the past 16 years. During the session, Peter Vicary-Smith highlighted many examples of inappropriate sales and incentive schemes and a lack of accountability. 

Recap some of the highlights from the evidence session with our summary of tweets.

Inappropriate PPI sales

Consumers mis-led at the point of sale

Between January 2005 and December 2007, Egg sold PPI policies alongside its credit card to 106,000 customers, earning £16.7 million in premiums. The Financial Services Authority found that 40% of Egg's telephone sales of PPI breached the regulations.

Banks selling poor products to consumers

Major high-street banks sold PPI policies where the cover only lasted for five years, but the loan lasted for 25 years and the consumer would be paying for the PPI over the entire period of the loan.

Inappropriate staff incentive schemes and sales targets

Lloyds TSB received 87% commission for selling its customers one particular form of PPI. This meant that if the bank sold a policy with a premium of £10,000, they received £8,700 in commission. This is the highest level of commission Which? has ever seen in the financial services market.

Also, advisers at Alliance and Leicester received six times as much bonus for selling a loan with PPI as for selling a loan without PPI. If they did not sell PPI with 50% of loans, then they would have their bonus cut by a quarter.

A recent Which? undercover bank staff survey revealed two-thirds of those with a sales role and sales targets said they were under more pressure than ever to meet targets. Almost half (46%) knew colleagues who have mis-sold products in order to meet their targets and four in 10 (40%) said targets drive employees to sell when it's not appropriate.

Lack of individual responsibility

The only senior executive at a large institution who has been subject of an enforcement action by the FSA was the chief executive of Land of Leather – a sofa shop.

Which? has continually warned about PPI, from as early as 1998, highlighting the poor value of this insurance and criticised the inappropriate sales practice in the banking sector, but many banks continued to sell them for years after warnings were given.

Big Change in banking

Last year, Which? launched a campaign to make the banks work for customers, not bankers. More than 130,000 people have already signed our Big Change pledge. Which is calling for 

  • Bankers to put customers first, not sales with pay and bonus schemes, at all levels within banks, that are clear and transparent and prioritise meeting the needs of customers over simply making sales.
  • Bankers to meet professional standards and comply with a mandatory code of conduct like that seen in the medical profession. It should be independent, backed by statute and contain genuine sanctions for malpractice.
  • Bankers to be punished for mis-selling and bad practice – senior executives should be individually accountable for the decisions they make about product design and remuneration schemes, with stronger criminal sanctions and bonus clawback.

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