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PPI complaints surge to 300,000 with near-£3,000 average payout, says ombudsman


The Financial Ombudsman Service (FOS) has upheld 90% of complaints about mis-sold payment protection insurance (PPI) and may need to employ more staff to deal with a recent upsurge in complaints about the product, it has said.

Banks are paying an average of £2,750 per claim for mis-sold PPI, the FOS told Out-Law.com.

British banks have had to repay thousands of consumers who paid for PPI but later found that they were ineligible to make claims. PPI claims to cover repayments due on loans for people who cannot afford to pay because of an accident, sickness or death.

Natalie Ceeney, chief executive and chief ombudsman of the FOS, said that the number of PPI complaints referred to the FOS will soon reach 300,000. In the UK the FOS has the power to resolve individual financial disputes.

Ceeney said the FOS has been receiving more than 3,000 new case complaints about PPI each week - a rise from fewer than 1,000 a week it was receiving two months ago. She described the figures as "pretty unsettling" for the Ombudsman and said it was difficult for the service to budget for such "operational uncertainties".

"A better understanding of the numbers and issues around PPI is crucial to our ability to plan ahead efficiently and gear up our operations for next year," Ceeney said in the FOS' newsletter (28-page / 2.85MB PDF).

"For us, this isn’t just a question of the volumes and flow of cases. It’s also about how well (or otherwise) the banks and other financial businesses, as well as the claims-management companies, will themselves have dealt with those cases that are subsequently referred to us to sort out and settle," she said. "If all this means we’ll need significantly more resource and capacity to handle ever-higher numbers of PPI complaints, then we need – now – to build this into the plan and budget we’ll be consulting on in the new year."

A spokesperson for the FOS told Out-Law.com that, of the complaints referred to it for resolution, banks were repaying on average £2,750 to individual consumers for mis-sold PPI. The spokesperson said that compensation figures varied significantly depending on individuals' circumstances but said some banks had paid individuals more than £10,000 for mis-sold PPI.

Last year the Financial Services Authority (FSA) issued new rules on selling PPI. The new rules said that customers could make retrospective complaints about insurance packages they were mis-sold. The rules came into effect from 1 December 2010.

The British Bankers Association (BBA), which represents more than 200 UK banks, challenged the new rules saying it was unlawful for the FSA to apply new sales standards to old PPI transactions.

In April a High Court judicial review into PPI complaint-handling procedures dismissed the BBA's attempts to overturn the FSA's rules. The BBA then dropped plans to appeal the High Court's decision after Lloyds and Barclays withdrew their support for the move.

Earlier this year the FSA reported that banks accounting for 92% of PPI complaints had repaid consumers a total of £557 million during the course of this year. The figures, which an FSA spokesman told Out-Law.com are due to be updated within the next week or so, showed a spike in the amount of compensation paid in July and August following the High Court ruling. Ceeney said that the redress paid in the immediate months following the ruling had accounted for a reduction in the number of PPI complaints referred to the FOS, but that subsequently PPI complaints had "climbed steadily".

"The High Court ruling in April gave us legal finality on the approach that businesses should take on PPI complaints. But it certainly hasn’t given us operational certainty on what complaints we can expect to see at the ombudsman service – how many and when," Ceeney said.

Ceeney also said that 80% of all PPI complaints are being referred to the FOS by claims management companies on behalf of consumers.

More than one million PPI complaints have been lodged with financial institutions this year and Ceeney said that "at least the same levels" are expected next year. Ceeney said it is "unclear what direct impact this would have on the ombudsman service – in terms of the numbers that would subsequently be referred to us by consumers unhappy with the way the businesses concerned handled their complaints".

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