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The big PPI lesson for banks

Robert Peston | 10:02 UK time, Monday, 9 May 2011

The big lesson for the banks from today's decision by the British Bankers Association not to appeal against the high court ruling on Payment Protection Insurance is - funnily enough - very similar to the big lesson from the Great Crash of 2007-8.

Barclays Bank sign

Which is that if a bank runs its business on the basis of what the regulators' detailed rules allow - rather than on the basis of what is commercially sustainable and sensible - public humiliation and enormous losses are likely to be the bitter harvest.

In the case of PPI, much of what the banks have now acknowledged to be mis-selling seemed consistent with rules laid down by the regulator, the Financial Services Authority, in its handbook and its source book on the selling of insurance.

But the FSA argued that following the letter of these rules was a necessary but not sufficient guarantee that the banks were behaving property. The FSA argued that the big banks should have been more mindful of its over-arching principles, notably the imperative of paying due regard to the interests of customers and treating them fairly.

The banks appear to have been so seduced by the apparently huge profits available from insuring personal loans, mortgages and credit card debt that they pushed the insurance to all manner of unsuitable customers (the self-employed who could never make a claim for being made redundant, or those with pre-existing health conditions, that would invalidate claims, to name just two common examples).

"It is very difficult to justify how we behaved" said one senior banker. "You can't imagine supermarkets treating their customers in the way we treated ours. I know my colleagues think that so long as we followed what was in the FSA's handbook, we shouldn't be blamed. But my view is that we forgot the cardinal rule, which is that we're there to serve customers, not to shove something down their throats which they don't need".

This departure from the very basics of retailing is costing the banks very dearly indeed. Last week Lloyds - the market leader in PPI and the first of the big banks to say it would provide comprehensive restitution - said that the settlement would lead to a £3.2bn expense.

Today, Barclays has quantified the compensation and related costs at £1bn. There will be a similar charge for Royal Bank of Scotland. And HSBC has just said it is setting aside £274m to meet these costs.

In total for all the big banks, the costs are heading towards £6bn or so - and that's to ignore the compensation bill for hundreds of smaller firms which joined in the PPI mis-selling frenzy.

Now what's striking is that the PPI debacle shares strong cultural characteristics with the behaviour that took many of the world's banks to the brink of bankruptcy less than three years ago. During the boom years before the crisis of 2007-8, you won't need telling that banks lent and invested recklessly - to subprime borrowers, to commercial property, to each other, through off-balance sheet vehicles, in the form of "structured" products which delivered the illusion of quality (inter alia).

And much of this reckless lending and investing took advantage of the global Basel rules that give the official regulators' view of how much risk the banks were taking - and, as we now know, were catastrophically wrong.

But - many bankers belatedly concede - banks should have known better than to make their judgments on how to lend on the basis of the regulators' rules. They should have done what other commercial businesses do, which was to lend and invest on the basis of what would be sustainable and prudent for the long term.

Gaming or playing the Basel rules, and forgetting commercial common sense, led to disaster. It meant that Royal Bank of Scotland, in the autumn of 2008, looked like a sound bank as measured by the Basel rules, when to all intents and purposes it was bust.

Of course it is reasonable to blame the regulators for framing the rules badly. But many would say that the banks were more at fault for mindlessly running their businesses on the basis of what the rules allowed.

So what's the big lesson of both PPI and the 2007-8 crash? Well, it is probably that banks need to base everything they do on what is good for customers, shareholders and creditors in a fundamental sense - and not on what the rules allow them to do.

PS Apart from the banks, another group of firms - the claims management firms - look set to be burned by the banks' decision to chuck in the towel and pay compensation to 2.75m or so individuals who were mis-sold PPI insurance.

The banks will now set up operations to speedily process claims for compensation. So they would argue that there is no point in their customers using the services of claims management firms, because in doing so those customers would not gain any additional compensation but would have to pay commission to the claims handler.

Comments

  • Comment number 1.

    The problem with detailed rules and regulations is that people will game them.

    What I would like to see, in the FSA's rule book is

    Rule number 1 -DON'T BE A PLONKER.

    Then they can add the other 2,500 pages.

    But rule number 1 takes precedence.

  • Comment number 2.

    The underlying problem with the banking market is that it is so difficult / fraught to change banks. So we are treated as a cash cow by our bank secure in the knowledge we are more likely to get divorced than move to another bank. If there is to be a fundamental shift in attitude in the banking sector then it has to start with it being as easy to chnage banks as energy supplier / telecoms supplier etc. I know a slew of comments will come in from people telling me how easy it is - but the key fact remains that we remain "loyal" to a bank whilst they treat as with disdain.

  • Comment number 3.

    Surely they took the dosh, didn't pay any of it out , so now after using it for a few years interest free, all they do now is pay it back to only those that bother to claim.

  • Comment number 4.

    Four years ago the banks would have appealed with complete disregard for their customers, like the way they did with unfair charges.

    I'm savvy enough to have never taken their useless PPI but I am glad everyone else who did will get their money back.

    Will it make me trust banks more..never. Over my dead body will I ever trust a bank again.

  • Comment number 5.

    It is interesting that the banks have decided not to appeal this decision and Lloyds have had to set aside the largest amount of £3.2bn.

    Will Lloyds now try to regain some competitive advantage over the others by bringing a new scandal to light, one where their exposure is limited but their competitors exposure is huge ? (tit for tat)

    I'm thinking something along the lines of collusion between mortgage providers, mortgage surveyors and estate agents to push up the price of properties in an area (and so increasing the percentage based fees payable).

  • Comment number 6.

    Crikey, first coupla of bloggs being moderated! Did they contain several expletives?? Capatalisim is the lesser of 2 evils, there is no middle ground!

  • Comment number 7.

    Replace the word 'fraud' with 'mis-selling' and then everything's hunky-dory!

    In any other industry these spivs would have been sent to prison.

    How is this any different to a petty thief being caught red handed and then being let off after just handing back his ill gotten gains.

    In the City (as in Wall St) not one single director has (yet) been sent to prison.

  • Comment number 8.

    Robert,
    Who is being naive quote:
    "Well, it is probably that banks need to base everything they do on what is good for customers, shareholders and creditors in a fundamental sense - and not on what the rules allow them to do. "
    As we are dreaming then not only the banks & regulators but I suggest politicians also take similar action.
    Any criminal proceedings from this blatant rip off? No I thought not.

  • Comment number 9.

    The greed of the untouchably huge and important (see omnipotent) business lynchpins of the British econmomy has once again caused financial havoc. And once again the costs associated with this greed will be paid for by the 'customer'. How long will the people of Britain have to keep paying for the mistakes of a few greedy bankers? Mistakes that my 16 year old students effortlessly acknowledge as counterintuitive to common sense.

  • Comment number 10.

    Why so long ? This was a no brainer for the Banks to say they mis-sold. Hope the compensation includes loss of interest at their usuary impersonating unauthorised overdraft rates as they have been borrowing customers money without authorisation for some considerable time. Back to the spelling lessons boys !!!!

  • Comment number 11.

    It is the way of the market, stupid. Economists do not seem to have grasped that there has been a change in kind across many markets that it is the objective to price and promote whatever the market will take including old fashioned deception now practised widely. The energy companies know a trick or two and the supermarkets are not among the innocent. Our consumer protection laws and sector regulations are woefully inadequate. Robert how about a controversial post on this one?

  • Comment number 12.

    What is quite amazing is that the bankers clearly forgot the purpose of the word `value' in their mad dash for bankruptcy: value for their customers, value for their shareholders and value for business goodwill. This is the direct consequence of a bonus driven culture in which what gets measured gets done but nothing else. The bonus culture must end as it distorts morality and business.

  • Comment number 13.

    So, after fighting this tooth and nail, they couldn't escape the facts - but! How many other "products" have they sold and continue to sell that we haven't yet discovered are worthless to the customer and ever so profitable to the bank and the obscene bonuses, the fat cat merry go round continues. I fear this gluttony is endemic now and the beneficiaries so used to it they don't know how wrong they have mistreated the gullible consumer. We have more "watchdogs" than ever in history and yet more scams and schemes to take ordinary folks money from them. Where will it end?

  • Comment number 14.

    The bankers will not be best pleased.
    I mean they will not be used to keeping to the letter and spirit of the regulations.
    How are they to make money from the rest of us?
    Ah. Of course. They make a loss and we bail them out. Time and time again.
    Clever bankers.

  • Comment number 15.

    The only rule bankers needed is so simple - "do unto others as you would want others to do unto you".
    Ripping off customers seems to contradict that.
    Any bonuses coming back and any heads rolling?

  • Comment number 16.

    RP wrote:

    'But - many bankers belatedly concede - banks should have known better than to make their judgments on how to lend on the basis of the regulators' rules. They should have done what other commercial businesses do, which was to lend and invest on the basis of what would be sustainable and prudent for the long term.'

    WELL THEN THEY ARE LIARS!

    If this were the case then they would turn their collective backs on the entire securitisation business.

  • Comment number 17.

    Sorry Robert, did I read this right?

    "It is very difficult to justify how we behaved" said one senior banker...

    Actual humility from a banker? Have we turned a fundamental corner here?

  • Comment number 18.

    Banks used to be in the business of assessing the risks, at first hand, when making a loan to an individual or company and then keeping that loan (asset) on their books until the loan was fully repaid. The so called 'originate and hold' method of bank lending.
    Since the advent of securtisation, the entire banking industry has developed the so-called 'originate and distribute' concept of banking, thereby transferring all risk onto some other unsuspecting sucker (there really is one born every minute).

    Securitisation is now de riguer in the finance industry.

  • Comment number 19.

    The bigger implication to all this is that it's the retail arm of the universal banks that 'originate' the loans in the first place. They then hand it over (i.e. sell it) to the investment arm for them to package up and re-sell!
    This is why we are all being duped about the IBC's plan to simply create internal fire-walls to separate retail from casino...er, I mean investment banking arms. It's an impossibility given the nature of current banking practice.

    It's the loan origination process (retail lending) that is the 'goose-that-lays-the-golden-eggs' that the universal banks want to keep their sticky hands on. However, without combining that with the securitisation process employed by the casino/investment activities they CANNOT make the obscene levels of profit.

    We are all being duped on this.

  • Comment number 20.

    And to cap it all, the banks won't lend to businesses, despite well thought out and intelligent business plans being presented, despite their own appalling lack of business sense.

  • Comment number 21.

    As an 'insider' the problem is a fundamental misunderstanding of the customer relationship by banks. Their customers are not idiots, cash cows there to be milked to death so someone can get their target this month.
    Finance is not everyone's specialist subject and customers must be able to trust employees when they go there seeking help and advice. Banks need to learn the 'win win' customer model if they are to survive in their current form. If not then they can go the way of the dinosaurs and be replaced by a more customer focussed model. Need inspiration ? Look at European banks, want to move momey today ? no problem. Dodgy investment products ? not sold. Terms & Conditions ? One page long, normal size print in plain language. It isn't difficult !!!!

  • Comment number 22.

    I have watched all this furore with glee for years. I sold PPI for years. At one point I got comission for it. PPI made us lots of money - so for example - If we sold a £7,000 loan - then onto we added PPI (As a lump sum) it was £3,000 - so we then charged interest on £10,000. If the customer repaid us early (say from re-mortgaging) then we kept a large chunk as a redemtion fee. We were supposed to be "ethical" but its where we made large profits and got lauded for our "penetration" I.E selling it on top of a loan. I NEVER sold it to self-employed or customers with known pre-existing conditions. But even so it was hellishly expensive for the customer. I no longer work in the industry but have wondered when this worm would turn and someone would bite back.

  • Comment number 23.

    ‘In the case of PPI, much of what the banks have now acknowledged to be mis-selling seemed consistent with rules laid down by the regulator, the Financial Services Authority, in its handbook and its source book on the selling of insurance.’

    Surely the FSA's first rule should be:
    'To only sell a financial product if it's in the clients best interest, after a proper assessment of the clients situation and needs'.

  • Comment number 24.

    Perhaps, at long last, some reality is being forced on the banks. The concentration on selling for a profit, whether it's mortgages, lending, cds's, cdo's, whatever, has been the prime aim irrespective of any benefit to customers.

    The banks are like lemmings and when you add in bonuses the attractions become too great to be ignored. This is exacerbated by the impact of short term reviews of staff performance (commissions earned) - sell or you lose your job.

    The majority of customers are ignorant of the way money works (apart from the household budget) so selling is easy and the allied insurance commissions are highly attractive and profitable to the banks.

  • Comment number 25.

    "banks need to base everything they do on what is good for customers, shareholders and creditors in a fundamental sense - and not on what the rules allow them to do".

    This of course starts at the top then filters through to the frontline.

    Trouble is so does the reverse i.e. the greed, ego and recklessness of those at the top gets translated in to sales targets and ruthlessness at branch or call centre level.

    Those of us who resisted selling or charging at any cost were soon pushed aside and out by the Goodwins of this world. it wasn`t only the customers who suffrered.



  • Comment number 26.

    2.75 million people mis-sold? Are there really that many people incapable of understanding what they're buying? I've never had PPI, but even I'm aware that it excludes the self-employed and the sick (pretty obvious really). I bet many of the 'victims' knew that too, but thought they'd try it on. But OK, I'm the idiot because I read the big & small print.

  • Comment number 27.

    But is it not the nature of private business to make as must profit as possible while acting within the law? We must assume that the banks believed that what they were doing was legal even although they must have realised that it was not in their customers' best interests.

    This is yet another example of the failure of regulation. Something else is needed. Perhaps a professional body which imposes moral standards on those working in an basic industry like banking. But even that might not be enough.

  • Comment number 28.

    The big Leeson for banksters is how print enough get out of jail free cards with "to infinity and beyond " on the front and super injunctions on the back ,to avoid being caught with their Nick errs over their heads whilst sitting on their photocoppiers preparing their bottom line for the Auditors

  • Comment number 29.

    Didn't anyone in any of the banks who were selling PPI which included redundancy cover to SELF EMPLOYED people, ever stop to think 'hang on, this might not be such a good idea...'?? Or did they simply assume that no one would ever find out?

  • Comment number 30.

    There are centuries old mutual companies who are also culpable for allowing miss-selling of many 'insurance' or 'endowment' products sold by 'independent' brokers.

    No doubt, all the big financial institutions have got together to pay off complaints in order to protect ALL their reputations?

    The trust has gone. Ordinary people have lost money, pensions, investments and years of their lives in fighting for justice.

  • Comment number 31.

    Actually it's not that difficult to change banks. Just need some preparation. Review your debits and standing orders, Set up your new account then change them over when your first paycheck goes in. Do this youself rather than getting your new bank to do it. Online banking means you can track each one and switch funds between accounts if there are any issues.

  • Comment number 32.

    Until the 2007 – 2008 crash, most bankers thought that they were the masters of the universe! Now they know that they are just gamblers!

    When they sell, they ask:

    Is it legal? and;

    Can we get away with it?

    They do not ask whether it is right or wrong.

    They are just driven by greed and get-rich-quick mentality.

  • Comment number 33.

    It is not the banks we should be worrying about it is the Bank of England (and FSA) - this is the core of the rot - the real agent of banking destruction!

    Banks only did what the Bank and the FSA said was OK - that has proved to be catastrophic for us all - so, when are we going to wake up and sack those that failed so catastrophically at the heart of regulation?

    The banks have been permitted, if not actually encouraged to abuse their monopoly protected position - the PPI issue is the tiny tip of the iceberg! The unseen monster is the role that the banks played in dramatically encouraging and boosting inflation, by lending far far too great a multiple of income to almost anyone. This is, and will be, the cause of the Long Depression that is only now starting. The banks will have cause several generations of completely unnecessary pain to the country and still those who stood by and did nothing except encourage the stupidity are in their jobs!

    Mervyn King you know who you are! The one thing that is certain is the Mervyn will live the entirety of his retirement in an impoverished and degraded country directly as the result of his own actions- on his 5 million pound pension fund - which will buy half of what is would have bought a few years back - due again to his own actions! Every time his monthly pension annuity payment arrives it will be half of what he might have expected....

    Never again must we permit a governor of the Bank of England to single-handedly destroy the country!

  • Comment number 34.

    British Bankers Association WON'T APPEAL ruling on Payment Protection Insurance.
    Good one!
    The FSA argued that following the letter of these rules was a necessary but not sufficient guarantee that the banks were behaving property. This is absolutely correct and this is why banks hire the sharpest minds graduating form financial academies. I suggest that FSA change its operating rules accordingly and that banks learn due regard for the interests of customers and treating them fairly.
    Banks will always be seduced by the apparently huge profits available from insuring personal loans, mortgages and credit card debt, pushing unnecessary products, making profits where none are otherwise available.
    The banks: As long as "we" followed what was in the FSA's handbook, we shouldn't be blamed. What about ethics? What about integrity? What about helping the FSA become more effective by providing advice instead of taking advantage of a poorly written procedure? What about being a good corporate citizen?
    Since when does the FSA state that banks should push unnecessary products down the throats of customers - unusually unexplained.
    When you consider the humongous bonuses that have been paid to bankstas, the costs of of restitution seems minuscule.During the boom years before the crisis of 2007-8, the banks bent & broke the rules, invested recklessly - to sub-prime borrowers, to commercial property, to each other, MOST OFTEN through credit default swaps and derivatives to the tune of 600 TRILLIONS (ESTIMATE THROUGHOUT THE WORLD).
    I AWAIT WITH GREAT EAGERNESS THE COURT RULING ON WHAT THE INVESTMENT BANKS HAVE DONE THROUGH CDS/DERVIATIVES, INCLUDINGTHE DAMAGE TO SOVEREIGN DEBTS.
    Bankstas should have known, you can't fly close to the sun on wings of wax. Of course it is reasonable to blame the regulators for framing the rules badly. But I don't think the writing of the rules would have stopped this kind of nefarious stomping on the rules. Why do you think the banks hire the best financial minds, give such high bonuses: The more you find ways to cheat, the more you get paid.
    I don't know whether the bankstas will play fair with the compensation; so one avenue my be a class action suit against each bank involved, even if it's just because the banks say it is not necessary to go this way. Not necessary?
    Of course its necessary, fool me once shame on you; fool me twice shame on me.

  • Comment number 35.

    19. At 12:28pm 9th May 2011, museV wrote:

    "It's the loan origination process (retail lending) that is the 'goose-that-lays-the-golden-eggs' that the universal banks want to keep their sticky hands on. However, without combining that with the securitisation process employed by the casino/investment activities they CANNOT make the obscene levels of profit.

    We are all being duped on this."

    ----------------------------------------
    Must admit I'm not a fan of internal fire-walls separating casino from retail operations of the banks either. They have never worked in the past and there is no reason to assume they will work this time. Straightforward break up of the two operations is the only practical way forward.

    However, in this particular example passing the loans for re-packaging to the casino operations may not actually be so hugely profitable to them if done properly. As long as they pay market price for loans the profit they make on securitisation should not be excessive. At present they don't pay market price for internal loans - hence artificially inflated profitability. And huge bonuses for minimum fuss....

  • Comment number 36.

    Is this a sign that Banks are accepting responsibility for their disgraceful behaviour over the past 15 years or just another example of them being out of touch and seeing what they can get away with. I think I would go with the latter rather than the former! http://bit.ly/jDKJcb

  • Comment number 37.

    While I'm sure that sharking marketing practices and sales techniques have an element to play, having worked for over a decade in the financial sector in various roles from credit to analysis, I am constantly shocked and amazed at how many people will sign up to something without having read it or even basically understanding it.

    It's your name you're signing, it's your money you're signing up to spend/save/borrow....surely that's worth a few minutes of your time?!

    The banks are getting blamed for far too many of the customers errors.

  • Comment number 38.

    27 Stan blogger - 'make as much legal profit as possible'.

    Not quite - if one is a director or a shareholder one is also interested in a few other things

    1. Cash for example - profit without cash flow swells the ballance sheet with debt and needs money to sustain it - not so much of a problem in the UK - unless you sell specialist services to lawyers ..who wont pay you for months .......but in the far east for example be very careful - you can make any profit you like but you're not going to get paid unless you exercise lverage at every opportunity. So for example anyone with any sense would chose a 10% profit paid now vs a 20% profit paid in a year.

    2. Also in UK most directors with a brain - some wouild say the minority !!! should also be interested in liabilities - eg making loads of profit is fine but if you pick up a bunch of liabilities (lawsuits etc) in the process - then all the profit you think you made will evapourate and could turn to a financial loss, a loss of reputation and a lost opportunities whilst you spend all your time trying to sort out the mess. So we all want a clean ballance sheet correctly stated thank you very much so we can sell our shares and retire - not a pile of complicated and expensive paper full of weevils like the banks PPI liabilities and all the crazy securitisation contracts.

    3. However, you can understand how attractive the PPI product appeared to banks - first they make the loan to the individual and price it nominally according to the risk - so they can make a profit on that - then they get the customer to reduce the risk for them by buying an insurance that they also make a commission on, then finally they securitise the whole package by insuring the risk with some third party - all of which could be achieved with extremely little capital employed. They all thought they were making even more money whilst at the same time reducing the risk. Hard to dream up anything better unless you are Simon Cowel.

    All boards of directors should be entre-prenuerial - because if there is no risk in the long term there can be no reward .....but in the real world bankrupcy and business failure sorts out the stupid and the reckless and throws them and their shareholders on the scrap heap. However, once a whole industry begins to believe its own bullshit and the elements of that industry are so large that they are more of a risk to society than to themselves - then we all have a problem.

    Break up the banks - do it now

    Let b

  • Comment number 39.

    This blog really needs to have a voting system on comments because all I really wanted to say is that No. 1 is spot on. However now that I'm here:

    Blaming the regulators isn't really fair, especially, when banks and financial institutions pay so much to lobbyists in order to have the rules written in ways that suit themselves. If banks play a significant, although discreet, role in writing the rules and then proceed to blame the rules and regulators for being inadequate once everything gets horribly messy, then the banks are just being as disingenuous and dishonest as we know they truly are. The regulations didn't work last time, the banks admit that, yet they are all trying their damned hardest to water-down new regulation to levels that many independent, non-vested, experts say are inadequate.

    I think Robert's article really strikes at what is wrong with the banking industry, a contempt for customers and a preference for hiding behind the defence of blaming the rules of the game; regulations they played a large part in forming, gaming and capturing!

    Is the market not ripe for a bank that says 'we'll pay you lower returns but at least we'll treat you properly'?

    Having already begun to second-guess myself has this not happened because it would be set upon by the other banks, or that, customers really don't mind being mistreated by their banks? I know that many people wouldn't care much for losing a bit of a return on their deposits given how measly returns are anyway.

    One final, and slightly unrelated, point, how horribly deceitful can a bank be to profess that subsidiarisation is bad because it will add to customer costs! Yes it is true, but have the banks already forgotten how much they have cost me, and everybody else, over the past 3 years! Believe me, I'm willing to take on small additional costs to prevent another massive bill turning up on my doorstep a few years down the line, and now for banks to pretend they are looking after me, by preventing me paying for this, is grotesque!

  • Comment number 40.

    I was hoping BBC journalists would take the line of penalising the banks' behaviour. If the reporter who wrote this had the first clue what he was writing about in terms of what the regulations are then the tone would be different to what is here.

    Clearly not take the following:

    "Which is that if a bank runs its business on the basis of what the regulators' detailed rules allow - rather than on the basis of what is commercially sustainable and sensible - public humiliation and enormous losses are likely to be the bitter harvest."

    If that sentence was changed to "Which is that if a bank CHOOSES NOT TO RUN its ..." then it would be truthful reporting.

    The rules are all there to PREVENT this from happening, the regulator just was far too lazy to actually enforce it or employ people who cared enough to stop it.

    The FSA rulebook maybe 9 feet high if fully printed out; however the problem with it has been that it has NEVER been properly enforced on the major institutions. The rest of the market knows that if the FSA turns up its unlikely to survive a visit. A major corporation simply ignores them entirely as hand them a little bit of paper and they disappear. After 10 years of dealing with the FSA, know 1st hand they are a total waste of money and effort. All the FSA did when it came into being was take ISO9000, BS7799 , Investors In People and a couple of other ISO's and a thesaurus. They re-wrote the ISO's in their words and put them out as rules backed up by statute and sat back, hoping that the ISO and standards community would do their work for them. If disbelieve that, go and look at the online FSA rulebook's SYSC and TC sections and you'll see it.

    The issue with PPI has not been the product itself rather the price and the lack of care in its sale. When brokers, in house "advisers" and agents are offered up to 10x the base cost in commission to put on top before selling it to the customer, of course its going to be abused and sold where its not even remotely suitable.

    MarkofSOSH - They simply didn't care, it met their ridiculously high sales targets and got them the commission.

  • Comment number 41.

    Oddly enough, I READ agreements before signing them, hence I've not been mis-sold anything - I have been aware of the terms of anything I've decided to pay for.

    But it seems to me that the problem is the current trend for banks to offer 'products' to their customers, rather than sit down and work out how to meet each individual's financial needs. It's like going to a bookstore and being told that if my need is for something to read I have to buy a copy of Twilight, despite the fact that I don't care for vampire stories and would much rather read about werewolves!

    There's a thin line between 'mis-selling' and 'fraud' and I guess that the banks have decided to start paying up in order to avoid any further investigations that might have shown that the thin line had been crossed.

  • Comment number 42.

    Will they still be getting their bonuses? Of course they will! Yet more contemp heaped upon customers and shareholders, not to mention taxpayers. And still not one banker in the dock.

  • Comment number 43.

    I cannot see how the bankers are going to lose anything from todays announcement. All they are doing is avoiding paying any tax, which would help the country get out of this mess by treating what they they owe the mis-sold as a loss. However the bankers themselves will still be paid their salaries and bonuses. In addition to that a large percentage whom they have mis-sold policies to will never make a claim.

    It is clear over the last few years that even people who post comments on this blog and complain repeatedly about banks and bankers continue to use their services instead of changing to a building society. I have therefore come to the conclusion that the banks do not have to change and have no incentive to change because they know that they can always rely on the British public to tolerate being ripped off.

  • Comment number 44.

    Perhaps Robert the FSA should explain the rules in words of one syllable, instead of 'trusting' the banks to behave properly. This should also be done for insurers - of all types - as they are no more to be trusted than the banks. YM

  • Comment number 45.

    "bitter harvest" - so true
    the only way banks will learn from their mistakes.
    the judiciary and FSA should make faster, tougher judgements on customer complaints, PPI was just too big a scam to go away!
    banks should be regulated to clean up the mistakes they have made..... customers with insoluble debt should be allowed to negotiate debt management with the very same people who sold them inappropriate loans, financial products etc and commission should be paid for correcting misselling.
    it will be interesting to hear of people who now try to claim back their PPI. Considering that many of them will be the vulnerable (aged, sick, unemployed, mentally ill) it will be interesting to hear how they fare and hopefully the press will follow up. Bank employees are renowned for their arrogance in treating people who display any vulnerability, it would not surprise me if they are directed to a call centre in Edinburgh where the staff are given commission for giving back the "least amount per customer" !!!! (NB the misselling of endowments..... why did so many claim companies make money out of that one????)
    Advice to claimants...keep all documentation and the best of luck

  • Comment number 46.

    Impossible for any regulator to write regulations down to the level where they become fully understandable. As the banks have gone down the line of paying big bonuses to sales teams their own internal regulations have been undermined by their own employees. I worked under a SOX regime and most of the time was spent with people trying to get round it. Until we see some punishment handed out that puts some of the culprits in prison then the idea of conning the public will remain. Look at the punishment handed out to the Phoenix four, not even a slap on the wrist just the promise not to be a director for 6 years how hard after they pocketed £40M+ between them. With punishments like that handed out the bankers will not be quaking in their boots to clean up their act.

  • Comment number 47.

    It's done - get over it. Finally, many financial institutions have said - we were wrong and our brokers behaved badly. It's the cheapest and most ethical option? We will pay up and shut up.

    Nonetheless, certain mutual companies are still liable for miss-selling via certain banks' brokers during the 1980/90s. And still counting?

  • Comment number 48.

    39. At 15:08pm 9th May 2011, AFX_Yout wrote:


    "Is the market not ripe for a bank that says 'we'll pay you lower returns but at least we'll treat you properly'? "

    Read an article in a newspaper toady about MetroBank


    Have a look at their website

    https://www.metrobankonline.co.uk/

    Could be the answer to your prayers. (If it lasts, that is)

  • Comment number 49.

    The endowment issue is not resolved? Miss-selling on this is unresolved - and the mutuals know it and so do their bank brokers?

    A conversation overhead at SL was a gem. We are responsible for H, and other banks miss-selling. Recorded conversation.

  • Comment number 50.

    • 37. At 14:45pm 9th May 2011, xyriach wrote:
    “While I'm sure that sharking marketing practices and sales techniques have an element to play, having worked for over a decade in the financial sector in various roles from credit to analysis, I am constantly shocked and amazed at how many people will sign up to something without having read it or even basically understanding it.

    It's your name you're signing, it's your money you're signing up to spend/save/borrow....surely that's worth a few minutes of your time?!”

    This actually makes the situations worse… are you saying that not only did you know the punters did not read the small print (so hid all the dodgy stuff there) and even when you knew the policy would never be paid out still failed to tell the customer? Look the other way did you in the interest of profit, or your job?
    It’s a good job writingsonthewall is not here today… what’s happed to him anyway?

  • Comment number 51.

    #37 xyriach wrote:

    > 'The banks are getting blamed for far too many of the customers errors.'

    I guess you are referring to CAVEAT EMPTOR.

    An interesting comment as you are assuming that there is uniform intelligence across all of society...which of course there isn't.

    However, I take your point, in that current legislation here (and in the US) demands equal rights for all, irrespective of their ability.

    Who in the US, as a percentage of the population, were mainly mis-sold ARM mortgages and lair-loans (and NINJA loans)? All that these people wanted was a house to call home, but they were mostly not cognitively able enough to understand the small print. They were deliberately mis-sold these products by 'snakes-in-suits'.

    (Look up the work of Dr. Robert D Hare for more info on this).

    I guess the banks were only being fair according to the legislation laid down by libertarian governments both in the US and here.

    Are you a snake-in-a-suit?

  • Comment number 52.

    Penalising the Greedy and Immoral for stealing from the Thick, Ignorant, Gullible, Lazy and those incapable of fending/thinking for themselves.

    As someone states above perhaps the most shocking thing is that there are 2.75 million people prepared to accept they are in at least one of these categories.

    I wonder if these are the same plonkers who were 'missold' endowment mortgages when in reality they were actually promised an easy buck and it never crossed their mind that might be too good to be true.

    Can it really be right that the courts have to accept that someone who has sued a bank for misselling them an endowment product can then sue the same bank for misselling them a PPI product - how stupid are some people??
    I am sure all the Bankers accept that they are Greedy and Immoral.

    No wonder our country is in such a bad state.

    Don't get me wrong I think Banks behaviour and the level of Bankers bonuses are deplorable I just think that people should be more responsible for their own actions.

  • Comment number 53.

    #50 UnionRep wrote:

    > 'It’s a good job writingsonthewall is not here today… what’s happed to him anyway?'

    He's gone off to do more useful stuff in the real world against the hypocrisy that is our libertarian 'dimocracy'. He got fed up when most of his posts were hitting home too accurately and were being moderated out.

    These blogs are useful to the establishment in a two fold way. One, they can monitor subversive thoughts and activity and two, it allows 90% of users to 'let off a bit of steam'...'get it off their chests' etc.... instead of doing something positive about it and taking real action.

  • Comment number 54.

    Whilst I would love to believe that our banking sector have all rushed out, after the credit crisis and in a fit of remorse, rented a copy of Akira Kurosawa's Seven Samurai and thought it wise to all collectively fall on their own swords........hoorah!!!!!!
    I find this charitable act on their part disturbing, as I do the financial correspondence/literati's lack of questioning over the fact.
    Namely, this wholesale movement/reaction in any other situation would be tantamount to borderline 'cartelesque' behaviour.......as......might I add, was the case that led to so many banks selling or should I say 'mis'-selling these products in the first place. Thanks FSA........asleep on the watch once more!!!!! Surely the FSA ought to be brought up before the Trading Standards!!!!! They certainly do not do what they say on the tin!
    My other concern is that these figure appear incredibly high?!!?!?
    Are we to believe that all this mis-selling went on........Lloyds to the tune of £3.2billion?!?!?! Could we look at the books before profit is hived off for God knows what? Mmmmm......There wouldn't be the odd bankers' bonus hidden in there.........would there?
    You know......what the other bastions of the economic aristocracy........namely the accountants and auditors would describe as "creative accounting"!

  • Comment number 55.

    Surely there are Rules governing what is or isn't Legal in an insurance policy ?

  • Comment number 56.

    39. At 15:08pm 9th May 2011, AFX_Yout wrote:

    This blog really needs to have a voting system on comments

    Absolutely. I couldn't agree more. Often I just want to vote or tag a comment with agree/disagree/person must be a banker

    Is this a difficult thing to add? I don't know.

    It's also a shame that when some people ask questions of Robert Peston, he never replies to them. This of course is a different matter, as he's not paid to reply to them, may be too busy and/or can't be bothered. It's just a shame, not an expectation that he should reply.

    Also, I have read a little about the control that banks have over the total amount of money in the system, and it seems to me they have this control when it should be controlled by the government (in any country not just the UK). Also the government is paying interest on money 'invented' by the financial system (banks) that is lent to government. Why is there nothing much written about this? Is it because it's the single biggest fraud in human history and has been going on since the 17th century? If you work, earn and pay for things without any debt whatsoever, you're still losing money because the total volume of currency is increasing, and the government is paying interest. There's no escape until banking/the City/Wall Street/etc is totally reformed.

    Break up the banks.
    Make usury illegal.
    Allow the banks to fail.
    No more government borrowing its own money.

  • Comment number 57.

    UnionRep perhaps he realised the intrinsic shallowness of Humanity, especially when asked to put decency and honesty before a fast buck.

  • Comment number 58.

    Afternoon Robert,
    so the banks have decided (collectively?) not to appeal as they realise they are unlikely to win the appeal.
    Now for the problem area. Who pays for the compensation?
    The bankers won't pay from their ill-gotten monies, the banks won't pay from their enormous bonuses so guess what, the taxpayers will pay for the two nationalised banks and the customers will pay for the rest.
    Isn't this what is called a pyrrhic victory?

  • Comment number 59.

    So the BBA has taken legal advice and on the basis of that advice has decided not to appeal. So it has nothing to do with the banks accepting that they mis-sold a financial instrument which in most case was worthless, (except of course to the seller).
    These crocodile tears from the banks are what they are, crocodile tears, they broke that fundemental rule the 11th commandment "thou shalt not been found out"
    Same rule applies to the majority of politicians, perhaps we should start a law suit for the mis-selling of political promises!

  • Comment number 60.

    • 53. At 17:18pm 9th May 2011, museV wrote:
    #50 UnionRep wrote:

    > 'It’s a good job writingsonthewall is not here today… what’s happed to him anyway?'

    He's gone off to do more useful stuff in the real world against the hypocrisy that is our libertarian 'dimocracy'. He got fed up when most of his posts were hitting home too accurately and were being moderated out.

    These blogs are useful to the establishment in a two fold way. One, they can monitor subversive thoughts and activity and two, it allows 90% of users to 'let off a bit of steam'...'get it off their chests' etc.... instead of doing something positive about it and taking real action.
    • 57. At 17:36pm 9th May 2011, supercalmdown wrote:
    UnionRep perhaps he realised the intrinsic shallowness of Humanity, especially when asked to put decency and honesty before a fast buck.

    |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

    Well I must say I’m surprised, WOTW was a person of conviction at least between 09:00 hrs and 18:00 hrs, I wonder if someone at his workplace rumbled him.

    His views may have leaned slightly in the Marxist direction and been to the left of others on this blog (and why not?) but nevertheless they were just a valid as everyone else’s, in addition he could be funny, outrageous (especially in his comments about others postings), humble, arrogant and sad… all at the same time.

    Working in the City at the heart of the Capitalist systems he was also a political enigma.

    He must also hold the record on this blog for the most posts being - moderated out as breaking the house rules.

    I for one will miss him…..

    PS
    (I’m pretty sure that this person was not female but apologise in advance if proved wrong)

  • Comment number 61.

    Banks and bankers have a herd mentality. If they see one bank getting away with it and making a large profit, then they all start doing it. This prompts the question:
    "Which bank was first?"

  • Comment number 62.

    The banks need to be FORCED "to base everything they do on what is good for customers, shareholders and creditors in a fundamental sense - and not on what the rules allow them to do." This requires tough coordinated regulation. It won't happen.

  • Comment number 63.

    PPI typically has loss ratios of 10% - i.e. only pays out 10p & keeps the other 90p in the £.

    The banks don't underwrite it, but often take commissions in excess of 50%.

    The Kray twins would have been proud of it.

  • Comment number 64.

    Here we ago again - another round of Bank bashing and all are being tarred with the same brush. What else is there to talk about now the royal wedding is over. I have worked for one of the Banks mentioned for over 30 years. Yes we were targeted to 'sell' prection with loans but the vast majority of us DID go into customers circumstances to check that the cover was suitable - if it did not cover pre existing conditions then the customer was advised accordingly & if they were self employed special policies were available to business customers covering sickness/life/accident only. It was a hanging offence if the conditions were not clearly explained. Only today I have come out of an appointment where a customer with a heart condition has had his loan paid for the last 3 years due to protection insurance. Now sadly, due to reckless attitude of a few, everyone will lose, as will customers unfortunate enough to be struck ill after taking out a loan without insurance.

  • Comment number 65.

    The underlying problem remains that banks don't charge for running most current accounts. Cheques, standing orders, calls to call centres, internet banking, direct debits, anti-fraud monitoring - all provided free to attract customers. So inevitably they try to generate income from 'cross-sales'.

    It's like a gas provider not being able to charge for the gas they supply and having to sell its customers televisions instead.

    So we should expect (and demand) more ethical sales practices (meaning fewer sales, less income) coupled with charges for the banking transactions that are currently provided free.

  • Comment number 66.

    When a bank moves to everybody at all levels being on a bonus for doing their job - which seems to be the deal in place - it just begs disaster. There are times that a bonus driven environment just gets in the way and destroys the customer - provider relationship. I've seen this sort of approach - usually proposed by somebody remote from the job - several times -and all commonsense is removed from the process which is initiated from above. I just hope it doesn't migrate to the Health Sector. If I am ever getting surgery I don't want the surgeon working on the job on a bonus scheme. I just want the job done properly. Incidentally I now find when I go to post a letter I am asked every time whether I want insurance etc etc. Who thought up that mind numbing idea. The same sort of guys I guess.

  • Comment number 67.

    64 Reg:

    ''Here we ago again - ..... ...... Now sadly, due to reckless attitude of a few, everyone will lose .....''

    Oh, come on Reg. The reckless attitude is at the top in the banks. Or hadn't you noticed. It has been clear to me on more than one occasion that the front desk people I have dealt with have not wanted the aggressive sales push they have been placed under.

    PS I have heavily edited your words - Not that I want to take words out of your mouth.

    PPS Could you tell the guys at HQ that if the cleaner unplugs the computer at HQ accidentally its not a good idea to not have backup system. The idea the whole system stops if the plug comes out, which has happened on more than one occasion with the mob I deal with is just not clever.

  • Comment number 68.

    64. At 20:11pm 9th May 2011, Reg wrote:
    “Here we ago again - another round of Bank bashing and all are being tarred with the same brush. What else is there to talk about now the royal wedding is over. I have worked for one of the Banks mentioned for over 30 years. Yes we were targeted to 'sell' prection with loans but the vast majority of us DID go into customers circumstances to check that the cover was suitable - if it did not cover pre existing conditions then the customer was advised accordingly & if they were self employed special policies were available to business customers covering sickness/life/accident only. It was a hanging offence if the conditions were not clearly explained. Only today I have come out of an appointment where a customer with a heart condition has had his loan paid for the last 3 years due to protection insurance. Now sadly, due to reckless attitude of a few, everyone will lose, as will customers unfortunate enough to be struck ill after taking out a loan without insurance.”

    Clearly your logic is proved to be incorrect as the bank you work for has conceded to what amounts to the current law we all have to abide by… and they were found wanting.

    In any other industry, those that actually sold the policies knowing it was not valid for the individual concerned would have gone to prison and still may.

    You as an individual may be the exception, not the rule… either way your ethos is now entangled with all those that did not take the same view as yourself and these seem to be in the majority or the finding of the current processes are wrong!

    Either way your in trouble so wake up to what was done.

  • Comment number 69.

    65 JustKBO:

    'The underlying problem remains that banks don't charge for running most current accounts. Cheques, standing orders, calls to call centres, internet banking, direct debits, anti-fraud monitoring - all provided free to attract customers. So inevitably they try to generate income from 'cross-sales'.'

    Two points - Firstly the figures indicate a profit over the period of the PPI sales is still available even after looking at the one off hit for PPI, ignoring the casino loss problem, which would appear to have little to do with retail banking. Secondly - this is a business model developed by the banks not their customers. I cannot imagine a bank taking much notice of their customers. Not based on their record to date, QED. The differential between fat interest rate charges alongside skinny Jack Sprat saving rates appear to provide at least some revenue for the banks as they lick the platter clean.

  • Comment number 70.

    60 UnionRep:

    WOTW got banned on RPs blog and posted his goodbye on here some time ago.

  • Comment number 71.

    'The reckless attitude is at the top in the banks.'

    In some cases, Arthur. Probably true of Fred Goodwin, Andy Hornby and Victor Blank. Less true of Stephen Green.

    In many cases I suspect those at the top didn't realise exactly how the next level down were achieving their sales results. They wouldn't have known the detail of the sales techniques or the pressures put on front line employees to achieve their sales targets. And Reg is right to point out that some banks sold this product to some customers to whom it was a genuine and appropriate benefit.

    Personally I always find front office staff in my bank very helpful and I've never had any difficulty in declining a product I'm not interested in. But this is only after years of staring into the mirror, putting on a serious face and practising saying 'no' until I felt confident enough to try it outside.

  • Comment number 72.

    PPI

    Just another reason why what was "Too big to fail" last time is going to fail next time!
    The only question is WHEN?

    http://www.accountingweb.co.uk/blogs/jefflcbba/mad-lemming/mad-lemming-no-longer-alone

  • Comment number 73.

    71 JustKBO:

    " .... 'The reckless attitude is at the top in the banks.'

    In some cases, Arthur. Probably true of Fred Goodwin, Andy Hornby and Victor Blank. Less true of Stephen Green."

    I think its called getting detached from reality and surrounding yourself with yes men. One unnamed individual at least appeared to think financial products were like tins of baked beans - stack high and sell them on. Unfortunately he forgot baked beans can repeat on you. I don't share your faith I'm afraid, some I suspect of being selectively deaf - not that I know the people in question, its just an impression from reports read. However psychiatrists usually find at least some execs quite interesting. Interesting study in the States I believe.

    Victor eh, of Blank cheque fame. Not Victor Ludorum then. I always thought the cheese and biscuits with Gordon Brown was a mistake. GB the negative Midas. Everything he touched turned from gold. Bless him. Who would want that job.

    But you are right, all should not be painted the same.

    The bigger the loss you can potentially make the more upward mobility you can show is not a good model. Have seen it before.

  • Comment number 74.

    Khan I think it was described a contract of employment as a command under the guise of an agreement.
    He was clearly describing the situation where the bargaining powers of the parties were entirely out of kilter.
    Someone sitting in front of the banks rep like someone who had been out of work for months and desperate to get the job might have just said yes to whatever it took to get the banks rep onside in the hope of getting the loan they needed.
    Not a difficult sale even if the customer arguably doesn't need the product and the salesperson who is potentially rewarded, ostensibly has all the power.
    Another situation where banks make money that isn't really money but people earn a lot in the meantime?



  • Comment number 75.

    I had PPI in the late 90's and early 2000's and was made redundant twice during this period. PPI worked very well for me; I even made a profit from it because the credit card insurance paid 10% of a fixed balance At the end of my 12 months claim Barclaycard owed me money. Perhaps that's why they had to sell the product vigorously later to cober the losses made on the earlier badly designed products

  • Comment number 76.

    A multiple choice question - what message is this PPI debacle trying to send out?

    a. No companies should sell products that consumers don't need.

    (The 'C' part of GDP might drop a little in this Utopian dream. "You can't imagine supermarkets treating their customers in the way we treated ours" Am I alone in seeing people who are not in need of calories buying supermarket products without being advised that the small print on the packet clearly makes the product unsuitable for them.)

    b. Don't try to insure yourself, it will be alright.

    c. Don't worry if you are unable to understand the small print, "we'll" look after you.

    d. It is always more efficient to target than to treat all equally.

    (c.f. is mean testing always right)

    e. Financial markets are the source of all evil.

    (perhaps we should have zero liquidity).

    Obviously ethics, institutional frameworks and regulations matter, but the general message this sends seems dubious.
    As we learnt a few months back banks were going to cut back on / remove their financial advice because of the cases in which they are wrong, will they now remove PPI because of the cases they get wrong. What percentage of cases of financial advice were OK? What percentage of cases of PPI selling were OK?

    Still out I go to the shops today to buy something I don't need and then I'll see if I can get compensation.

  • Comment number 77.

    So for once the Banks have owned up to ripping us off and it will cost them something like £6bn to put it right. How do you think they are going to make that sort of cost up - yeah, right, by upping fees for everyone, so we end up paying for their greed again - what an industry!

  • Comment number 78.

    I watched Robert Peston's report on this on BBC News 24 last night. It seemed to me to be rather different from that which might be produced by honest and intelligent analysis.

  • Comment number 79.

    Robert's blog is a little different from his BBC News broadcast of last night, but he still makes excuses for the banks, "mis-selling seemed consistent with rules laid down by the regulator".
    An honest and intelligent analysis of the bank's behaviour would conclude that the banks thought to themselves, "let's have a look at the rules and see how much we can get away with", and they got away with theft - for a time.

  • Comment number 80.

    Faisal Islam:
    http://blogs.channel4.com/faisal-islam-on-economics/now-is-the-time-to-seize-bankers-bonuses/14176#comment-4870
    Gives a frank and intelligent account of the banks deliberate gouging of customers which rather contrasts with Robert's.

  • Comment number 81.

    Am I alone in wondering if Robert Peston isn't in some way writing with the interests of the bankers in mind?

  • Comment number 82.

    Nice one, take billions from the banks when they are recovering thus slowing down the recovery. This country!

  • Comment number 83.

    Lindsay_from_Hendon wrote:
    Nice one, take billions from the banks when they are recovering thus slowing down the recovery. This country!

    You missed a few words out...

    it should read take BACK OUR billions from the banks.

  • Comment number 84.

    How has 'mis-sold' been defined?

    Has anyone estimated the proportion of PPI customers who were mis-sold? We hear about the self-employed and long-term sick but these must be a small proportion. It can be argued that PPI was a benefit to someone who was in full-time employment with avrage health, and surely many people have claimed and been paid.

  • Comment number 85.

    As a general rule, the harder the sales pitch, the dodgier the product. You dont need to be Einstein to realise that the banks pushed their grossly overpriced, dodgy insurance as hard as they could because it wasnt good value. It was the worst kept secret in the financial sector. Its quite likely that the FSA didnt manage to work it out because they couldnt organise a proverbial drinking session in a brewery. I have worked in FSA (and its poredecessors) regulated roles in the finance sector for over 20 years. Some of what they do is well-meaning and works, all off what they do is cumbersome and leads to slavish box-ticking. By encouraging - or rather, insisting upon - a culture where ticking boxes to prove you have gone through a process is all important, they have taken away the role of judgement and responsibility. Little wonder, as the esteemed Mr Peston states, that the banks played by the rules but outwith the bounds of reasonable commercial practice. Absorbing the FSA into the Bank of England wont solve the problem. It needs a complete reworking of the rules of the game. PS I am deeply concerned: twice in a year I find myself agreeing with Mr Peston. I fear for my sanity

 

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