It's a superb day for consumers. The banks have taken one hell of a whooping in the High Court today as it delivered a devastating verdict.
Their challenge to the Financial Service Authority's (FSA) new rules on Payment Protection Insurance (PPI) have been roundly beaten (for the judgement, see the Banks lose PPI case MSE News story).
In court, it was difficult to glean who'd won at first, as the Judge handed his decision in complex legalese. It was only when costs were awarded to the regulator that those of us supporting consumers let out a breath of relief.
So far, 1.2 million PPI reclaiming template letters have been downloaded from this site, showing the sheer scale of this problem.
In a nutshell, the decision means that if the banks find mis-selling cases which are systemic – in other words the same bad practice applied to many other people – they won't only have to help those who've knocked on their door to reclaim.
They will also need to contact people who haven't complained and say "we may owe you money" – words you rarely hear from them.
This could be huge. Up to three million people could get £3 billion back. It's not bad news for the economy either, as that cash circulating rather than sitting in vaults could be very helpful. Yet that won't happen quite yet.
I remember making similar jumps of delight after the first bank charges victory, and again after the banks lost in the Court of Appeal. However in the Supreme Court, the final arbiter, the banks won.
That is possible in this case too, though even if the banks appeal it wouldn't be as devastating this time. Unlike the bank charges, this case isn't about the fundamentals of reclaiming – it's about new, more stringent rules and how to deal with mis-selling cases.
Even if the ruling was overturned on appeal, people would still be able to reclaim.
The banks should hang their heads in shame
The banks have behaved abominably not once, but twice. The first time was the outrageous mis-selling where, amongst other things:
- They told people PPI was compulsory (it's not).
- They gave it to some people without telling them and hid the price within the loan cost.
- They didn't check whether people were already covered by a different policy.
- They failed to check whether people had pre-existing conditions, which were excluded by the PPI policy.
- The fact PPI is an insurance policy that costs £1,000s wasn't explained.
- They didn't tell people it would only pay out for a year
Yet even worse is the way they have treated people complaining about it.
Many people who were scared of confronting the big beasts plucked up the courage to write to banks and tried to reclaim. They were then were greeted by a rejection written in legalese, designed to put them off taking it further.
This is despite the fact that banks know over two-thirds of people who take their cases on to the Financial Ombudsman Service get a payout.
Time to lift the hold
In recent times, this has got even worse. Since the court case, the big banks (with the exception of Santander) have put reclaims on hold.
This mimics the hold that came into place during the bank charges trial, though that time it was authorised by the FSA. Here it is unilateral. In fact, the FSA and the Ombudsman have slammed banks for it.
Yet that hasn't stopped banks refusing to deal with complaints in the meantime, even though they've no right to. Worse still, they've not co-operated with the Ombudsman, leaving it clogged with cases and slowing the whole process.
Now, banks must lift this hold though they're refusing to for now. In that case, it's time for the regulator, the FSA, to get meaty on their backsides.
If banks won't follow the rules, they shouldn't be allowed to play the game at all. Threatening big fines is irrelevant – a punishment charge of £10 million means nothing to banks if it saves them £1 billion in payouts.
The only credible threat is suspending their licence to do insurance business – nothing else will scare them into compliance and it should be done right away.