LONDON: Britons faced a crunch deadline to claim compensation for mis-sold insurance that is costing UK banks billions of pounds, while tarnishing their battered reputations further following several financial scandals.
Customers have until 11:59 pm (2259 GMT) to question lenders whether they have had Payment Protection Insurance added to credit products such as loans, mortgages or payment cards.
While PPI was intended to cover missed payments, for example if a policy holder lost their job, in many cases consumers were unaware the insurance had been added to a product, while others would never have benefitted despite pressured into taking it.
UK watchdog, the Financial Conduct Authority (FCA), this week said £36 billion ($44 billion, 40 billion euros) had been paid out in PPI compensation since the start of 2011, when banks lost a high court appeal against tighter regulation of the insurance.
Lloyds Banking Group (LBG), a lender bailed out by the UK government following the 2008 global financial crisis, is by far the worst affected, setting aside more than £20 billion, an amount likely to rise.
According to the FCA, an estimated 64 million PPI policies have been sold in the UK, the majority over a 20-year period to around 2010.
Ahead of the deadline, consumers can contact banks and credit-product providers directly, asking them if they ever had PPI.
They can also use third-parties to contact banks on their behalf but such companies will take a fee totalling as much as one quarter of any compensation payout.
“The deadline is about starting a claim,” said Martin Lewis, founder of consumer website MoneySavingExpert.com.
“Many thousands of millions of pounds… (is) still sitting out there for people to get back on PPI that was mis-sold to them.
“If you’ve had any form of debt in the last 30 years you need to check,” added the leading campaigner for consumer rights, while noting that banks had persuaded regulators to set a deadline so they could draw a line under the long-running scandal.
Lewis added that a typical payout has been £3,000 but that one totalled £240,000 — while the billions in compensation to date has boosted consumer spending and thus the UK economy according to analysts.
British lenders meanwhile, in particular LBG and Royal Bank of Scotland, have endured a torrid decade after suffering massive state bailouts — as well as fines and compensation payouts totalling tens of billions of pounds.
In addition to PPI, British lenders have been slammed for their roles in the US subprime crisis, as well as manipulation of foreign exchange markets and Libor interest rates.
Meanwhile, Britain has come up with “nothing credible” to replace the controversial Irish backstop in its deal to leave the EU, Ireland’s foreign minister said Friday.
Prime Minister Boris Johnson wants the backstop — the fallback provisions for the border between EU member Ireland and UK-ruled Northern Ireland — to be scrapped completely.
With the clock ticking down to the October 31 departure date and Johnson insisting he will not postpone, the EU is pressing Britain to come up with workable alternatives.
“We all want to get a deal but at the moment nothing credible has come from the British government in the context of an alternative to the backstop,” Coveney said as he arrived for a meeting of EU foreign ministers in Helsinki.
“If that changes, great. We’ll look at it in Dublin but more importantly it can be the basis of a discussion in Brussels but it’s got to be credible.”
Fears among Brexit-supporters that the backstop could leave Britain tied indefinitely to EU rules were a major reason why British MPs voted down the current divorce deal three times.
Brussels and Dublin insist the backstop is essentially to safeguard the EU single market and avoid risking the return of sectarian violence in Northern Ireland.
Johnson wants to replace the backstop with a commitment to find so-called “alternative arrangements” in the future, but Coveney said this was not good enough.
“We will not allow a really important element of the withdrawal agreement to be removed… to be replaced with something that doesn’t stand up to scrutiny and is simply a promise that we’ll do our best to solve the problem but not explain how,” he said.
“That is not an approach that either Ireland or the EU will support.”
Brexit negotiators from the two sides are to meet twice a week throughout September in a bid to find a way through the deadlock, London said.
Johnson insists Britain will leave on October 31 come what may — even if it means crashing out in a chaotic “no deal” Brexit that causes economic turmoil.